Debt is related to a fire. It can be useful if it is small and controlled. However, if you ignore it for even a moment, it can quickly become an uncontrollable and destructive force. And when that happens, it becomes an impediment you must overcome every day: it prevents you from saving and amassing wealth, as well as from enjoying life. Some people never get out of this situation. They take loans to cover loans, and the interest on those loans quickly adds up.
However, you do not have to let debt consume you. Getting out of the red is difficult, but it is possible. In this article, we will show you how to regain control of your finances in five simple steps:
1. Commit to a debt-free way of life
To get out of debt, you must take drastic measures and accept that life will be difficult for a while. To carry out your plan, you'll need to exercise a great deal of self-control. Recognize it now. No more parties, and no more justifications - "It was only a small loan, and I desperately needed a new TV." Getting out of debt necessitates, above all, a strong will.
2. Create a Budget and start saving
The next step in debt relief is to create a budget. You must be realistic about your expectations in this situation.
PRIORITIZE EXPENSES & CUT OUT WHAT YOU DON’T NEED
You don't need DSTV, and you certainly don't need a gym membership if you've only gone once in the last month. Be ruthless in this situation. Your budget is a big guy, and you want to slim him down. Consider your true needs rather than keeping up appearances. You should be able to do better than that by now.
CREATE A BUDGET
Once you've compiled a list of all necessary expenses, categories them into one of five categories: rent, debit orders, groceries, transportation, and utilities. Your rent and debit orders should be the same every month, but you should keep track of you’re spending in the three other categories to avoid overspending.
STRETCH YOUR NEW BUDGET
You'll be surprised at how far you can stretch your budget once you start cutting costs. Keep an eye out for good deals on groceries and buy in bulk. If you don't already have a low-cost bank account, you should get one. Any money saved on banking and groceries (or any other category) will allow you to pay off your debt more quickly.
3. Create an emergency fund
Maintaining a debt-free lifestyle necessitates the creation of an emergency fund. If you don't have this rainy day fund when you need it, you'll have to rely on a loan to cover those unexpected expenses, such as burst geysers, vehicle repairs, sick children, and so on. So, how much of a cushion do you require between yourself and these mishaps?
This is determined by a variety of factors, including the number of dependents in your care, the condition and value of your car (if you have one), and the limits of your medical insurance (again, if you have one). Make a list of what could go wrong and then budget for the worst-case scenario.
4. Improve your credit score
Your credit score affects not only your interest rate when you apply for a loan, but it may also affect your current interest rate. Lenders review their customers' risk levels on a regular basis to determine the type of interest they should be charged, and if you don't want to pay more than you have to, you should do everything you can to improve your credit score.
Fortunately, there are a few steps you can take to reduce your risk:
A. Pay on time and don’t miss payments
B. Get off the blacklist (if you’re on it)
C. Spend responsibly
5. Consider consolidating your debt
A debt consolidation loan is a financial product that can assist people who are in uncontrollable debt in getting out of debt and lowering the cost of their debt. These products can reduce debt costs by allowing a person to replace several smaller debts with a larger single loan at a lower interest rate.
We offer debt consolidation loans at Old Mutual to help our customers cut costs, save money, and get out of debt faster. Our debt consolidation loans provide clients with a strategic and affordable way to eliminate debt by offering lower interest rates and flexible loan terms and amounts.