Getting out of debt successfully is not easy. You may have already amassed a number of debts and thinking it will be impossible to ever get out.

Here are 10 Steps to get out of Debt.

  1. Stop Borrowing More. If you have any credit cards that are at their maximum limit, cut them in half. If you still have more than one credit card with some credit, cut them up too. When you finish, you should have no more than one credit card. You will use your one last credit card as an “emergency card”, used only in major emergencies.
  2. Take stock of your spending. Writing down everything you spend can be tedious and difficult. This is actually one of the keys to getting out of debt. You may be in debt because you spent money you didn’t have. Your debt didn’t come from one single huge purchase; it was regular spending accumulated over time. Conquering debt starts with knowing what you are spending your money on. Each day for one month, write down every Rand you spend, no matter how small.
  3. Categorise your spending. Categorise your monthly expenses into groups of “Needs,” “Should have,” and “Like to have.” “Needs” are things that may cause harm if you don’t buy them, such as food, rent, medicine, pet food, etc. “Should haves” are things that you need, but can do without occasionally, e.g., new clothes for work, gym membership etc. “Like to haves” are things that you don’t need, but enhance your life, e.g., magazine subscriptions, newspaper, a contract cell phone, etc. By doing this, you’ll have a good idea of what you spend your money on, and you’ll be able to figure out where you might need to cut back on spending. You don’t want to eliminate all of the “should haves” and the “like to haves,” but take a look at those first. One of your expenses will be paying off your debt. You will want to always pay more than the minimum required.
  4. Make a budget based on your spending record. Write down the amount you spent in each category of spending last month as you budget for spending for the next month. Don’t sweat if you feel like the amount is too much. For now, just write it down. If you spent R1500 on clothes last month, write it down. If you spent R1000 on petrol for your car last month, write it down.
  5. Make a Plan to get out of Debt. Looking at your new budget, you’re going to be able to see areas where you might be able to cut back. Are you paying money for a gym membership you never use, despite your best intentions? Chances are your budget has some fat that can be trimmed. At the end of this exercise, you should have come up with a figure, a number of Rands that can be put toward debt repayment. Make a note of this figure. Day-to-day, if you don’t want to keep taking note of all your expenditures, just write down what you spend in the categories you are trying to cut back. This will give you a very clear idea of how well you are doing, and, if you know you’re going to go over your budgeted amount, it may help you decide to hold back on a purchase.
  6. Figure out how much you owe, to whom, and on what terms. Debt can often feel overwhelming because you really don’t have a clear idea of how much in debt you really are. Gather your bills, and make a simple list or spreadsheet or paper list of all the debts you have. Write down all the pertinent facts, including name of the creditor, your total balance, your minimum monthly payment, and your interest rate.
  7. Debt Repayment. Take the debt repayment figure of money you trimmed from your budget in step 4, and apply it to debt repayment. It’s a good idea to prioritise the debts to which you are going to apply this extra money. Do you have debts that are past due and the creditors are hanging out on your door? Pay these first!
  8. Make it a Habit. This means that you repeat the above steps as often as it takes to get out of debt. Now that you know your spending and what debts you owe, keeping it up gets easier and easier.
  9. Don’t give up. You certainly didn’t get into debt in a day, and you won’t get out of debt in a day. Quick fixes don’t last, but learning how to manage your money can bring great peace into your life, and you can spend your time on more fun things.
  10. Have a Debt Buddy. If you need extra motivation, get your spouse or friend to help you and meet regularly to check on each other. If you also have a friend in debt, motivate each other and do this exercise together.

Author: Gerald Mwandiambira CFP®

Useful Websites

www.fpi.co.za – To find an accredited Certified Financial Planner or consider a career in Financial Planning

www.debtcol-council.co.za – If you have queries about debt collectors or are being harassed by a debt collector

www.dcasa.co.za – Debt Counsellors Association of South Africa – A professional Body representing Professional Debt Counsellors

www.ncr.org.za – The National Credit Regulator (NCR) was established as the regulator under the National Credit Act No. 34 of 2005 (The Act) and is tasked with carrying out education, research, policy development, registration of industry participants, investigation of complaints, and ensuring the enforcement of the Act.