Being in debt is an everyday reality for 19 million South Africans who juggle necessities such as school fees, utilities bills as well as the general cost of living, sadly it’s a reality that many are also in denial about. If you’re one of those many people, then you need to avoid these 7 debt-trap pitfalls to ensure that you don’t stay in debt!
Trap 1: Keeping up with minimum payments
If you struggle to continue paying the minimum payments, then we suggest you make use of our debt counselling partner. However, if you are making the minimum payments, and you have money left over that you are spending on unnecessary items, then divide this extra amount across your debts, or add it the smallest debt, pay this off, then add the whole amount to your next smallest debt and continue until all your debts are paid off – this is known as the “snowball method”.
Trap 2: Ignoring the problem
Failing to deal with your debt issues are only going to make them worse. Whatever you do, don’t stop making payments. Rather speak to your creditors about reducing your monthly payments, and use the snowball method of repaying your debt.
Trap 3: Not understanding the root of the problem
Initially there may have been a very good reason to take out that loan, or get that credit card – but now it’s become a weight on your shoulders as you keep revolving the loan, or maxing out the card. Take a moment to understand exactly what you are spending your money on, and eliminate the unnecessary expenses, e.g. new shoes, mag wheels for your car etc.
Trap 4: Having a “Woe is me” mentality
Experiencing a crisis such as medical bills, or loss of income from a partner can often result in a person having to rely on debt for a while – but it is important that you realise this must be short-lived and not impact your long-term lifestyle. The worst you can do is to have a “Woe is me” attitude towards your debt and thinking that you are the victim. Empower yourself by understanding how your debt affects you every month and make a plan to pay it off.
Trap 5: Giving in to peer pressure
When you see your neighbour pull up in his new luxury German car, or remove the latest flat screen TV from the boot, you might feel a touch envious, but in a few months’ time, he may very well be struggling to make ends meet, or worse giving into his peer pressure and living way beyond his means to ‘keep up appearances’. Don’t let the pressure of keeping up with your friends and neighbours keep you in debt – learn to delay gratification, shelve the need to own the expensive stuff until you can truly afford it, and you’ll be in the pound seat, while those around you stress about how they will survive the next month.
Trap 6: Not prioritising your bad debt repayments
There is good debt and bad debt; good debt is seen as a loan that covers something that you expect to appreciate in value such as a home loan, business loan or student loan – provided these don’t result in you living beyond your means. Bad debts are those credit arrangements –with high interest rates – you make for short-term purchases, for example a brand new car, a computer or even a credit card and unfortunately if you do not maintain a good payment record on these short term credit purchases, you won’t be able to afford the good debt. So make paying off your bad debt a priority and once you have paid it off, really consider the pro’s and con’s before you consider acquiring more, ultimately you should make good debt a priority!
Trap 7: Not asking for help
Generally most people do not communicate the constant battles they face managing their finances, and it can be embarrassing to admit that they can’t handle their money (or debt) and this often holds people back from reaching out for help. Most people just need to understand the negative and positive effects that money has on their wellbeing, as well as assistance with managing their finances better, as well as a few coping mechanisms in order to curb impulsive spending. Sign up for our financial literacy course today, and start taking charge of your money!