If your goal is financial freedom – and living your best life with no financial strings attached – the most important place to start is by reviewing your debt. You’ll be amazed at how much money you can save (and grow) once you’re officially debt free.
Debt is one of the biggest causes of stress for South Africans, yet many of us are drowning in it. Sometimes it’s a result of poor decision-making and other times it’s because we need a little help in realising our dreams of studying, or buying a car or house; and then there’s all the times we’re hit with unexpected expenses for which we’ve not budgeted.
Here are some tips on how to chip away at that debt and get a few steps closer to financial freedom.
5 ways to reduce and get out of debt
1. Cut down on your spending
Yip, you’ve probably heard this advice before, but experience has probably taught you that it’s a lot easier said than done. Life is expensive and cash tends to slip through our fingers faster than we can check our bank balances.
The key to cutting down on spending is pretty easy once you get into the habit:
- Track what you spend (you can download a free app to help you).
- Think twice about every purchase you make (in fact, put it back on the shelf and only take it again if you’re convinced you need it).
- Only use credit cards for real emergencies.
- Now take all that spare cash and start paying off your debts.
2. Pay as much as you can afford (and top up regularly)
It’s simple: the more you pay, the quicker you’ll be debt-free.
- Review your budget. If you haven’t factored in your debt, rework your numbers and make sure that you’re paying more than the minimum at the beginning of each month.
- Top up regularly. What have you saved this week by cutting down on impulse buys or finding smart ways to make things go further and last longer? Use that cash to pay off debt and you’ll be that much closer to your goals and financial freedom.
- It’s an excellent time to take advantage of interest rate cuts. If your car and home loan repayments have dropped, but your income is the same, keep paying what you were a year ago. It will cut months – or even years – off your debt and reduce the interest you owe.
3. Choose which debts to tackle first and then become laser focused on your goals
There are two ways to tackle debts. You can choose to pay off the smallest debt first, which builds good money habits, or you can prioritise paying off the debt with the highest interest rate.
- Choose your method and plan how you will repay the debt.
- Set up regular payments that are above and beyond the minimums due (if possible).
- Use any unexpected cash injections, such as a tax refund or a bonus at work, to pay off your debt sooner.
- If you’re struggling to choose where to begin and you owe multiple lenders, you can consolidate your debt into a single, larger debt, such as a loan, which might offer more favourable payoff terms, including a lower interest rate. Steer clear of microlenders or informal lenders as they normally charge much higher interest.
4. Start a side hustle
The real secret to getting rid of debt is to move from spending more than you earn to earning more than you spend. Cutting down on expenses is the first step but making more money will also help you reach your goals faster. If you can’t move jobs or secure a higher salary, a side gig might be an excellent way to supplement your income.
- Do you have a passion or hobby that you can monetise in your spare hours?
- Do you have free time that you can use as a driver or pet sitter?
- Is there a business you’ve always wanted to launch or a problem you dream about solving? Now might be your perfect opportunity.
- Once your debt is paid off, you might have venture capital to fund the growth of your side hustle.
5. Don’t sacrifice the things you love the most
Choose one or two small things that make each day better, and include these in your budget.
You read that right! Paying off debt often involves a few lifestyle changes, but in this case, the juice is definitely worth the squeeze. Picture yourself in 20 years’ time, without a financial worry in the world, while everyone else still has car loans, bonds and credit card bills. That’s why you’re doing all of this.
Be cleva about your banking
An Everyday Personal Account from Tymebank has no monthly fees and low transaction fees, helping you to save more while you spend less.