Debt can be likened to a minor transgression which can then trigger a series of transgressions, which are caused by trying to cover up previous transgressions. In the end, you make everything worse.

Let’s look at the example below:

You – After arriving home after 10pm: Sorry dear, I had to work late. (Carefully prepared lie no. 1.)

Wife: I called your office but they told me you’d left at five. I also couldn’t reach you on your cell phone, it was going to voicemail.

You: I… um… went out to meet a client at the client’s office. (Hastily conceived lie no. 2.)

Wife: How come your breath smells of beer? Did you go out drinking with the boys?

You: No, no… I just had one beer. The client offered me one while we were discussing a marketing plan. (Completely unconvincing lie no. 3.)

Wife: I don’t believe you. What’s this client’s name, then?

You: Ummm…

With debt, the scenario might look something similar to this:

Transgression no. 1: You don’t pay off the full amount on your credit card because you have to settle a high hospital bill that your medical aid wouldn’t cover.

Transgression no. 2 (some months later): You miss a payment on your house loan because the debt on your credit card has climbed to the point where it’s a challenge even to make the minimum payment, let alone pay the full amount.

Transgression no. 3 (another few months later): You take out a personal loan at a prohibitively high interest rate to get your arrear house payments up to date, after some threatening letters from the body corporate.

Your debt crisis begins to get deeper and deeper…

In each scenario, there’s only one respectable way to break the cycle, and the sooner you do it, the easier  it is: swallow your pride, own up to your mistakes or misdemeanours, and make amends.

Personal Finance has covered topics such as this in detail :

• Get rid of your pride and admit you are in trouble. This is usually the hardest step. Explain to your loved ones you are having financial difficulties. Reassure them it will be resolved and everything will be fine.

• Determine just how much debt you’re in. You need to figure out whether, you can solve your debt crisis on your own, or if you are in so deep that you may need the help of an expert in the filed. If such a large portion of your income is going towards servicing debt that you don’t have enough for the basics, such as food and transport, you probably the input of an expert on how to manage.

• Do your background checks. Make a detailed list of your income and expenses for each month, grouping your expenses into debt repayments, essential expenses, and non-essential expenses.  Weigh the list and find a suitable plan that will help you be able to get the most essential items. Furthermore, look at certain things you can cut out possible until your debt crisis is solved.

• Draw up a basic-living budget. You can’t be spending more than you are earning. It is important to first cut back on the non-essentials until expenses equal income. Then you will further need to cut some more – even a saving of R500 a month will help. Oh, and there’s something else to cut, using a sharp pair of scissors: your store cards and credit cards. You’re allowed to keep your bank debit card.

• Stick to your budget, with your family’s support. If you are all agreeable to the idea, you are more likely to succeed. And make a positive of your efforts: “Look how much we’re saving by eating out only once a week”, or “Our family prides itself on wasting as little as possible and recycling where we can – it’s our contribution to the environment.”

• Now focus on settling the debt. Put the R500 (or more) you’re saving into paying off the smallest debt with a high interest rate. This is likely to be a store account, a credit card account, or a personal loan. It may take several months to pay off the account, which we’ll call account A. Once you’ve finished paying off A, take the whole amount you were paying on A (the regular repayment plus the R500), and add it to your regular repayments on account B, another account with a high interest rate. When B is paid off, you will have an even larger amount to pay off account C: in addition to the regular payment on C, you add the R500 plus what would have been your regular payments on A and B. Get it? On each successive account the amount you have available will be more than on the previous one. So you’re turning the vicious cycle into a virtuous one.

Once you’re at a debt level you manage on your own, you can now switch to a “maintenance diet”, by still trying to be as economical as possible while allowing yourself and your family a few luxuries here and there. At this point you can even starting to invest, in order to avoid debt in the future.


Article originally written by Martin Hesse.

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