Question

During lockdown my salary was cut by 50%. I had some debt to begin with and this increased substantially. I am back on full pay now but am feeling stressed and not sure what I should do

Do you have any suggestions on how to get out of debt efficiently?

Answer

This is a situation that many people are facing because of the lockdown.  Income did not match outflow during this period, leading to increases in debt. In addition to this, the debt relief loans we received now need to be paid back.   

The first step in dealing with this is to understand the size of the problem.  List every bit of debt that you have.  

I know this is tough and we do not like to face it but trust me, once you have listed them, you will feel more in control 

 It will take some effort to get the interest rates that the various companies charge but it is important that you do this.  The aim is to get rid of the most expensive debt first. 

No financial plan can exist without a budget and you need to draw up one. If you do not know how, drop me an email and I will send you a template. 

When you do your budget, you need to ensure that your income exceeds your outflow (including your current debt repayments) by at least R500 a month.  If t does not, make some cuts to your expenses.  Remember when you were going through lockdown, you survived without takeaways and visits to restaurants.  You can do it again (or at least a lite version of it). 

Another option is to get a side gig going.  Many people have several additional income streams, and these can make a massive difference over the long term. Remember we are looking for R500 a month to get things going. 

Now that you have a surplus in your budget, you can use it to kill your debt.  

Identify the item with the highest interest rate and add the saving that you have in your monthly budget to its payment.  For example, if you were able to find a surplus of R800 a month in your budget and your car loan had the highest interest rate, you would add the R800 to the car loan repayment of R3 000 and make that payment R3 800. 

You will find that the car will be paid off a lot sooner.  Now don’t be tempted to go and buy another car.  Keep the paid off car and work on the next item on your debt list, for example your store card.  

This is where the magic happens.  

You add what you were paying on the car (R3 800) to what you have to pay on the store card (R400).  By paying R4 200 a month to your store card, will see that this debt disappears in 3 months. 

You then apply what you were paying on the store card (R4 200) to the next item on the list, and then next and finally you start to clear your bond. Your bond will probably have the lowest rate as it has the longest term.  This is why it is usually the last item to be cleared.  

You can easily find yourself debt free and eventually bond free if you follow these steps. 

Remember, you will earn a finite amount of money in your lifetime.  You want to ensure that you spend as much of this on experiencing wonderful things and creating the life you want.  You do not want to spend it on debt repayments.    

If you exercise financial discipline and bite the bullet for a couple of years, you can get out of your current situation.  Being debt free will give you so many more choices in years to come.

 So, to recap. You must 

• List of all your debts and sort them according to the interest that is charged
• Draw up a budget and ensure that your income exceeds your outflow by at least R500.  The bigger this number is, the quicker you can get rid of your debt
• Add this budget saving to the item with the highest interest rate and pay off that item
• Then add this to the next
• And the next
• Live debt free