The quickest way people fall into debt is thinking they have more money than they do. Having more than one store card or credit card doesn’t mean you can go on a spending spree without any repercussions. No idea where to start when it comes to managing your debt? Fear not, we called on the good people at the Credit Bureau Association to teach us a thing or two about how to manage debt.
How to manage debt in under an hour
1. Get your credit report
Your credit report is a document that shows all the credit or accounts you have and how well you pay your accounts. You can request a free copy of your credit report from a registered credit bureau once a year. Knowing what your credit record looks like will help you determine how much debt you can afford to take on.
Another reason to get your credit report is to check whether it is correct. We’ve all heard horror stories about people who are denied credit for not paying accounts they never even opened. Checking your credit report is one way to avoid that happening and to spot fraudulent activity before it damages your credit history.
The information in your credit report gets used by all sorts of people. Potential employers often check credit reports before hiring staff, rental agencies almost always check credit reports before renting out properties and your credit report will affect whether you are eligible for a loan, and how much interest you’ll have to pay on your loan.
It takes five minutes or so to request a copy of your own personal credit report and you can do so via phone or online; phone 0861 514 131 or visit mycreditcheck.co.za.
2. Make a lump sum payment
Once you’ve scoped out your credit record, if you’re in a position to, making a few lump sum payments will really reduce your debt burden. Making a larger lump sum payment towards settling a debt means that you’re not only saving on interest, but you’re also freeing up cash in the long run. That’s why if you have any extra money, it’s almost always better to use it to pay off debt than to save it (assuming you are putting money towards a pension, medical aid and into an emergency savings fund).
3. Switch to email statements
We were pleasantly surprised to learn about this little trick. Getting your bank to change from paper statements to electronic ones could mean that the bank will give you a small incentive or discount on your fees for doing so. True story. Also, having important statements in your email inbox as opposed to your desk drawer (if they even get delivered!) is just more reliable and acts as a constant reminder of how much you’re spending.
4. Switch to debit orders
Debit orders are pretty useful in general. For one, they’re automatic so you don’t have to remember to make your repayments every month, and won’t run the risk of missing them, and damaging your credit history. Usually debit orders associated with credit can be set to pay the minimum payment due or a larger amount, so that way you know you won’t fall behind on what you owe.
5. Rethink all your accounts
It may sound tedious, but it’s super beneficial in the long run. Write down a list of all your credit accounts (including loans, cards, store cards and anything else). If you know the outstanding balance on each, write that next to each item — if you don’t know it, check! There’s no way you can start to manage debt if you don’t even know how much you owe.
Then give some serious thought to which ones you really need and which ones you could do without. For example, if you’re paying high fees for an expensive credit card “with benefits”, but find you don’t use the extras you’re paying for, you could save hundreds of rands a year just in fees by swapping to a more basic card.
Bonus: Consolidate your debt
If you have a home loan, plus debt from all sorts of other places (like store cards, credit cards or car repayments), it may make sense to use your home loan to pay off your debt. Because your home loan usually has the lowest interest rates, you will definitely save money by increasing the amount on your home loan and using the money to pay off things like credit card debt — which can have interest rates as high as 25%!
It’s also much easier to keep track of debt when it’s all coming from one place — that way you’ll know EXACTLY what you owe every month.