I am a 25-year-old with debt totalling R75 000. I am currently working on a contract basis and I don't know how to approach this huge debt and how will it affect me in the future.
Ann Wilson, CEO of The Wealth Chef, a company which teaches people to become financially free, responds:
Firstly, well done for actually knowing what your level of debt is and for making the decision to destroy your debt and get debt free.
This is the first step - making the decision to change your current debt story and do what ever it takes to clear it from your life. To do this, you are going to have to make changes in the way you've handled your money to date and do things differently from the majority of people around you.
Although at times this may feel difficult, keep reminding yourself why you are doing it and what living debt-free will mean for you and the opportunities it will create.
The key to destroying your debt is to create a structured debt destruction plan and stick to it.
You do this as follows:
1. Stop digging
If you want to get out of a hole you must stop digging and to do that you are going to get rid of the spade.
You cannot keep doing what you’ve always done and expect a different result, so now it’s time to change how you spend money and you must stop adding any more debt to the pile.
2. List all your debts
For each debt you need:
• A name;
• Who you owe this money to;
• How much you still owe;
• The interest rate you are being charged;
• The minimum monthly payment;
• Any special payment terms or penalties.
Find those credit card statements, student loans, store card statements, IOUs to family and friends, overdrafts, car loans, mortgage statements and so on.
They all must come out. You need this information to build you Debt Destroyer Plan.
3. Rank your debts
Place them in order, from the smallest amount owing to the biggest.
4. Determine the monthly minimum repayment
Determine the total monthly minimum repayment you need to make on all your debts and commit to keep paying the minimum repayment on all these debts. Where you can set up automatic payments via direct debit so you can relax and know it's being done.
5. Tackle one debt at a time
Now focus only on destroying one debt at a time. Energy flows where focus goes and if you keep jumping around trying to make extra payments on all the debts you will just feel deflated and frustrated.
Focus on the debt with the smallest amount outstanding and commit to adding a fixed amount to this debts repayment. This is in addition to the minimum repayment amount. Any extra money you get from anywhere also gets thrown at this debt.
6. Keep destroying your debt
Keep destroying this debt and once it is destroyed you take the full repayment amount you were paying on this debt PLUS the extra debt destruction amount you committed to and you now add that money to destroying your second smallest debt. This focused approach will give you a significant sense of achievement as each debt is destroyed and as the debts drop off you will have more and more money to pay of the other debts quicker and quicker accelerating your journey to debt free living.
7. Don't give up
Keep going and celebrate your success - you can do this.
- Fin24
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