Debt can feel like a crushing weight, especially when it comes from multiple sources—mortgages, credit cards, student loans, and store cards. It’s easy to feel trapped in a cycle where minimum payments seem never-ending, and the overall debt keeps growing. But even when the situation feels overwhelming, there are tools and strategies you can use to regain control. Here’s a step-by-step guide to help you reduce and manage your debt effectively.
We always need to remember that credit institutions want you to settle the debt, they do not want to have to litigate, go through the reposession of assets process and all the other messy processes in order to recoup the debt. The most important thing to remember is to communicate with your credit providers before the situation becomes so dire there is little prospect of resolving the issue without a legal process. Also remember that you are not the first or only person who is in the situation you find overwhelming and the credit providers have seen it all before and know what is most likely to work to settle the debt.
Once you have freed yourself from debt you can start your retirement investing journey. Read about the different investing strategies at different ages to maximise your investments for retirement.
Acknowledge and Assess Your Debt
The first step is to face the reality of your situation. It can be intimidating to sit down and review every debt you owe, but this is essential for creating a plan. Write down each of your debts, noting:
- The total amount owed
- Interest rates
- Minimum monthly payments
- Payment deadlines
Having a full picture of your financial obligations will allow you to prioritize and create a strategy for reducing your debt. This step also helps reduce the mental clutter that often comes with debt.
Create a Budget and Identify Areas to Cut
Next, establish a clear budget. Track your income and expenses to see where your money is going. You might be surprised by how much you spend on non-essential items. By creating a budget, you can:
Identify areas where you can cut unnecessary expenses (e.g., dining out, subscription services)
- Free up more money to put toward your debt payments
- Gain a clearer sense of control over your financial situation
- Budgeting apps like Mint or YNAB (You Need a Budget) can help you track your expenses more easily.
Prioritize Debts Using a Strategy
When you have multiple types of debt, you’ll need to prioritize which ones to tackle first. Here are two common strategies which may or may not include getting a loan against your pension fund
This strategy may also include taking advantage of the ability to reduce your debt by tapping into the available funds in your 2 pot retirement portion of your pension fund.
South Africa has an enormous amount of unclaimed benefits which is sitting there waiting to be claimed. if you moved companies and did not claim your pension fund, or had a relative/spouse who had unclaimed benefits, it is certainly worth going through the exercise to see if there are any unclaimed benefits in your name.
Debt Snowball Method
Focus on paying off the smallest debt first while making minimum payments on the others.
Once the smallest debt is paid off, move on to the next smallest, and so on.
The psychological benefit of seeing debts disappear can motivate you to keep going.
Debt Avalanche Method
Focus on paying off the debt with the highest interest rate first.
Once the highest-interest debt is paid off, move on to the next one with the highest rate.
This method may save you more in interest payments over time.
Both approaches are effective—choose the one that best aligns with your financial and emotional needs.
Consider Debt Consolidation
If juggling multiple debts is overwhelming, debt consolidation might be an option. This involves combining several debts into a single loan with a lower interest rate or more favorable terms. There are a few ways to consolidate debt.
Balance Transfer Credit Cards: Some credit cards offer 0% or reduced interest interest on balance transfers for an introductory period. If you can pay off the transferred balance within the promotional period, this can save you a lot of money on interest.
Personal Loans: You can take out a personal loan to pay off multiple debts and then focus on paying off the loan at a lower interest rate.
Home Equity Loans or Lines of Credit: If you have equity in your home, this can be another way to consolidate high-interest debt at a lower rate.
However, be cautious when consolidating debt. It’s important not to rack up more debt while you’re paying off the consolidated loan.
Negotiate with Creditors
Many people are surprised to learn that creditors are often willing to negotiate. You may be able to:
- Ask for a lower interest rate
- Extend your repayment period
- Request a temporary reduction in payments
If you are struggling to make minimum payments, contact your creditors before defaulting. Many creditors have hardship programs that can provide temporary relief or more manageable payment plans.
Seek Professional Help
If your debt is truly overwhelming, it might be time to seek outside help. Consider:
Credit Counseling – Credit counseling agencies can help you create a budget, offer financial education, and even negotiate with creditors on your behalf.
Debt Management Plans (DMP) – A credit counselor can create a debt management plan where they consolidate your debt and negotiate lower interest rates, allowing you to make one monthly payment.
Debt Settlement – This involves negotiating with creditors to settle for a lower amount than what you owe. This option can negatively impact your credit score, so it’s best to use it as a last resort.
Bankruptcy – For those who are completely overwhelmed by debt and have no other options, bankruptcy can offer a fresh start. However, it comes with long-term consequences for your credit, so consult with a financial advisor or attorney before taking this step.
Build an Emergency Fund
One reason many people fall into a debt cycle is that they don’t have an emergency fund. When unexpected expenses arise, they turn to credit cards or loans. To break this cycle, try to build a small emergency fund while paying off debt. Even a modest R5000 to R10 000 can provide a buffer for unforeseen expenses like car repairs or medical bills.
Change Spending Habits and Mindset
Breaking free from debt isn’t just about numbers—it’s about changing your mindset and spending habits. Here are some tips to help you shift your financial behavior:
Avoid impulse purchases by giving yourself a 24-hour waiting period before buying non-essential items.
Focus on needs versus wants, prioritizing spending that adds real value to your life.
Embrace frugality and look for ways to save on everyday expenses.
Celebrate small wins, like paying off a credit card or reaching a savings milestone, to keep yourself motivated.
Stay Committed and Patient
Debt repayment can take time, especially if you’re dealing with large amounts from various sources. It’s important to stay committed to your plan, even when progress feels slow. Celebrate each milestone and remind yourself that every payment is a step toward financial freedom.
Getting out of debt when it feels unmanageable can seem impossible, but by breaking the process down into smaller steps, you can regain control of your financial life. Create a plan, stick to a budget, and stay motivated. Over time, you’ll see the debt shrink and your financial stress reduce, giving you the freedom and peace of mind that comes with being debt-free.
If you’re feeling overwhelmed, remember that help is available. Take the first step today toward a more secure financial future.