If you find yourself buried deep in an ongoing cycle of debt, rest assured – all hope is not lost. Here are 5 ways of dealing with your debt problem.
1. Do not be an ostrich
While it is tempting to stick your head in the sand and hope that it’ll be ok, this is the absolute worst thing you can do when faced with a lots of debt. Debt is cumulative, which means that the more you ignore the problem, the bigger the problem will become. While it can be scary to face your debt problem head on, the sooner you do this, the sooner you will start to some sense of relief.
2. Draw up a budget, and start sticking to it
While drawing up a budget may seem to be “too little too late”, this will prevent you from falling further into debt. Ensure that your budget is realistic (i.e. if you know that you spend R2000 a month on food for the household, don’t put R1000 on your budget and expect that you can squeeze the household groceries into this). Also, ensure that you include items that are budgeted for every month, as well as expenses that are unexpected. These would be items such as birthday presents, speeding fines, trips to the vet etc. It is also wise to budget for “contingency” – this ensures you have money left over once all your expenses have been paid for the really unexpected things, such as a stay in hospital or an emergency flight.
Drawing up a budget is crucial in getting in dealing with your debt problem. It does mean making some hard decisions, and it is likely that the “fun” spend areas such as clothes, nights out and take-aways are likely to suffer. As tough as this is, it is worth it in the long term.
3. Communicate with your creditors
Most creditors (i.e. institutions to which you own money) are fairly reasonable if you approach them before they have to approach you. Speak to your creditors, and explain how much you can realistically pay back each month. Don’t push it though – if you owe R500 a month and suggest paying back R10 a month, they might not look at this suggestion too favourably. If you can work out a repayment plan that both you and the creditor are happy with, then stick to it. This will build trust in you, and will also avoid you being blacklisted further down the line.
4. Know your rights about debt collection
If you do get yourself into a situation when you are being hounded by debt collectors, know your rights. The Fair Debt Collection Practices Act dictates that “a debt collector may not call you before 8am or after 9pm, or at work if the collector knows that your employer doesn’t approve of the calls. Collectors may not harass you, make false statements, or use unfair practices when they try to collect a debt”.
5. Seek debt counselling
Seeking debt counselling can be a smart move when you find your debt spiralling out of control. The banks all offer this service, and many more privatised institutions also offer debt counselling. A debt counsellor has to be registered with the National Credit Authority. “Debt counselling provides you with more breathing space without getting into trouble with your creditors for short payments.”
Debt is frightening if you don’t know how to deal with it. However, keep in mind the above 5 ways to dealing with your financial troubles, and you will find out that debt doesn’t have to be the nightmare you think it is.