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Johannesburg - How do people get into debt-trouble? It’s far easier than you might imagine, and it creeps up on you! Five common mistakes:
1. Living beyond your means
Credit is so easily available – even now, when times are hard and the implementation of the National Credit Act – that it’s easy for people to believe they can afford all the extras: flat-screen TV, a high-powered laptop, a new car every two years, annual holidays at the sea and the like.
Sit down and work out how much all your debt is costing you. You might be shocked to discover what you are paying in interest alone.
Understanding your true debt situation will help you to develop a financial plan and budget for a more realistic life.
2. Failing to plan
A monthly budget will help you to identify the expenses that really do matter: apart from food, home-loan payments, lights and water, what do you spend your money on?
Understanding how you spend will enable you to cut down on unnecessary expenses and ensure you have money to repay debts and afford small luxuries that you regard as essential.
3. Ignoring the problem
If you are drowning in debt, your best policy is to face it. Some of us are so scared we can’t even bring ourselves to open our monthly credit card statements!
The longer you ignore it, the worse it will become, thanks to compound interest. If you can’t figure out what to do on your own, seek help from a financial advisor.
4. Using debt to cover debt
If you’re battling to pay your debts, one of the worst things you can do is to increase your overdraft. You will feel immediate relief as the injection of available funds enables you to pay pressing debts; but next month you will be in the same squeeze.
Another terrible strategy is to take out an additional credit card; credit card debt incurs high interest rates and boosts the amount you owe dramatically.
5. Not communicating with your creditors
People deep in debt are often frightened, and they can’t face their creditors, the companies to whom they owe money. But one of your best strategies is to talk to them as soon as you realise you’re in a crunch.
They are likely to treat you better if you tell them you’re in difficulties than if you simply default, which brings the big legal guns down on you.
Ask what you can do about re-scheduling debt: can you pay smaller amounts for a time, can you extend the repayment period?
Add your voice on the Debt Issue:
*Ask our experts
*Share a personal story
*Write a guest post
1. Living beyond your means
Credit is so easily available – even now, when times are hard and the implementation of the National Credit Act – that it’s easy for people to believe they can afford all the extras: flat-screen TV, a high-powered laptop, a new car every two years, annual holidays at the sea and the like.
Sit down and work out how much all your debt is costing you. You might be shocked to discover what you are paying in interest alone.
Understanding your true debt situation will help you to develop a financial plan and budget for a more realistic life.
2. Failing to plan
A monthly budget will help you to identify the expenses that really do matter: apart from food, home-loan payments, lights and water, what do you spend your money on?
Understanding how you spend will enable you to cut down on unnecessary expenses and ensure you have money to repay debts and afford small luxuries that you regard as essential.
3. Ignoring the problem
If you are drowning in debt, your best policy is to face it. Some of us are so scared we can’t even bring ourselves to open our monthly credit card statements!
The longer you ignore it, the worse it will become, thanks to compound interest. If you can’t figure out what to do on your own, seek help from a financial advisor.
4. Using debt to cover debt
If you’re battling to pay your debts, one of the worst things you can do is to increase your overdraft. You will feel immediate relief as the injection of available funds enables you to pay pressing debts; but next month you will be in the same squeeze.
Another terrible strategy is to take out an additional credit card; credit card debt incurs high interest rates and boosts the amount you owe dramatically.
5. Not communicating with your creditors
People deep in debt are often frightened, and they can’t face their creditors, the companies to whom they owe money. But one of your best strategies is to talk to them as soon as you realise you’re in a crunch.
They are likely to treat you better if you tell them you’re in difficulties than if you simply default, which brings the big legal guns down on you.
Ask what you can do about re-scheduling debt: can you pay smaller amounts for a time, can you extend the repayment period?
Add your voice on the Debt Issue:
*Ask our experts
*Share a personal story
*Write a guest post