Free yourself of debt

Spring-cleaning your finances? JOHN MANYIKE offers advice on what should be your number-one priority: reducing what you owe

IF COVID-19 has taught us anything, it’s the importance of responsible debt consumption. This may be the time to spring clean your finances to ensure that, beyond the pandemic, we are able to avoid falling into the debt trap.

A staggering and yet understandable 58% of households in South Africa’s metropolitan areas are facing high or overwhelming financial stress as the Covid-19 crisis knocks savings and raises debt levels, according to the latest Old Mutual Savings & Investment Monitor.

This is because life can be unpredictable. You could literally be jobless tomorrow and so, the less debt you have, the less you have to worry about in the unfortunate event that you’re unable to service it.

STEPS TO FREEDOM

Here are some practical steps that can help you become debt-free:

1. Avoid becoming a payday millionaire: Payday millionaires spoil themselves rotten, then go broke three days after payday, because they have spent the little money that was left after debit orders.

2. Make a conscious decision to live within your means: Make use of a budget, by identifying what is a need and what is a want.

accounts and credit card. Paying off small debts can boost your confidence and the feeling that you are making progress. Alternatively, target the most expensive debt, which is the debt that carries the highest interest rate.

4. Revisit your entertainment budget: Perhaps instead of paying for a full bouquet on your subscription TV, you can opt for a cheaper option.

5. Reduce your takeout budget by half.

6. Don’t borrow from your future self and don’t be tempted to draw from your retirement savings.

7. Side hustles are also helpful in paying off your debts quicker.

TIMES ARE TOUGH

For many South Africans, payday is a stressful experience because of overindebtedness and growing financial constraints. We at Old Mutual believe that simple debtrelief guidance and advice can go a long way to greater peace of mind and fostering long-term financial stability and wellness.

Not everyone who is over indebted fell into that situation because of recklessness or irresponsibility. Circumstances differ from person to person.

But there is a portion of our population that is credit hungry, who live for debt and verification, the Instagram flashy lifestyle and instant gratification.

Times are extremely tough, and the ongoing crisis and constant negative news cycle is feeding into this sense of hopelessness. However, the key is to understand that getting out of debt is possible and can be done.

The stark reality is that the South African economy was in trouble before Covid-19, with rising unemployment and slowing income growth limiting the ability to save. There is no greater time than now to take control of your finances and know better to do better.

Savings behaviour will play a big role in shaping the post-pandemic global recovery. Although the crisis has certainly made saving a lot harder, it remains possible to reverse South Africa’s poor saving record through a sustained collaborative effort, across the economy, with financial education, trusted advice and support at its core.

You could literally be jobless tomorrow and so, the less debt you have, the less you have to worry about in the unfortunate event that you’re unable to service it.