If you’re relying on credit to get through the month, or you’re overspending to soothe your anxiety, it’s difficult to imagine being debt-free. However, it’s not impossible.
We examine how you can get out of debt for good, whatever the reason for your financial woes.
Tip: Being in debt compromises your financial position. Why not consider debt consolidation, to free up your finances?
Reasons for getting into debt
There are many reasons for entering the debt cycle, from not earning enough to cover your expenses to being “addicted” to the dopamine that’s released when you shop.
Psychologist Quinton Williams notes that while compassion is needed, irrespective of the reason for debt entrapment, understanding the root cause is important.
“We need to differentiate between falling into debt because of events beyond your control, or being unable to manage your money emotions or deal with the pressures of the consumer economy,” he explains.
“If you’re in the former category, debt becomes a short-term life raft as you struggle to survive, but you won’t need to rely on debt once you’re back on your feet.”
Coping with financial pressures
Adele Barnard, senior financial planner and investment specialist at Sanlam, says that many financial pressures - some of which are unique to South Africa - may drive people into debt.
If you’ve just lost your job or you’re getting divorced, you likely won’t have enough money to maintain the lifestyle to which you are accustomed.
Further, the so-called “black tax” can put income earners under pressure, because family members are relying on their continued success.
“You may be pressured into buying a house for your family, even though you’ve just started your first job,” she says.
She highlights the importance of financial education, as it’s easy to be drawn into debt if you don’t have the information you need to make a savvy decision.
“If you qualify to buy an expensive vehicle, a car salesperson isn’t going to ask you if you can really afford it,” she cautions. “The monthly instalments may be within your reach, but what about fuel, maintenance, and insurance?”
A psychological perspective
If you get into debt because you simply can’t control your impulses, you may need to work with a life coach or therapist.
“Financial behaviour can be driven by strong, often misunderstood, emotions,” says Williams. “If you buy material items such as cars, clothes, or watches to boost your self-esteem, you’re likely not making rational decisions.”
He notes that our culture promotes instant gratification, which is reinforced on social media.
“Although this may satisfy your short-term psychological needs, it compromises your long-term prosperity,” he notes.
“Work with a professional to develop self-awareness, along with self-regulatory skills. This will allow you to replace self-defeating behaviour with a constructive alternative, such as creative self-expression, exercise, or setting measurable goals so you’re motivated to stay out of debt.”
Barnard notes, by way of example, that one of her clients stopped visiting social media platforms, knowing that the fashion she saw online was too high a temptation.
“A lot of internet content is ‘aspirational’,” Barnard says, “but much of it is driven by newly-acquired credit."
Financial planner Sylvia Walker, author of Smartwoman: How to Gain Financial Independence and Create Wealth, says it may help to install a website blocker, such as Cold Turkey, to block online shopping sites.
“Unsubscribe from retail newsletters and, if you’re bored, don’t go to the mall – rather go for a walk or start a new hobby, such as gardening, that will also give you a serotonin boost,” she says.
How difficult is it to stay out of debt?
Walker says debt can become a way of life, which can create significant problems.
“It’s easy to fall into the trap of buying items you can’t afford, then going into debt to fund this,” she explains. “This is largely avoidable. However, many people can’t imagine saving or paying cash for what they want.”
Cherise Erasmus, a certified financial planner at Crue Invest, says people exiting debt counselling are in a particularly vulnerable position.
“When you’re under debt counselling, you’re not allowed to incur any further debt until you’ve obtained your clearance certificate. You’re forced to live within your means,” she notes.
“However, when you have your clearance certificate, there’s no longer anyone controlling your access to credit, and old habits tend to die hard.
“You may also miss the lifestyle you led, which makes it easy to max out your credit card again.”
Having a sound financial plan will make you less likely to succumb to social pressure, which will allow you to say no to whatever does not serve your financial goals.
Tips for staying out of debt
Fred Wagenvoorde, a financial planner at Fiscal Private Client Services, offers the following tips for staying debt-free.
- Create a budget and stick to it. Take a hard look at your income and expenses and create a monthly spending plan. Budgeting helps you to know exactly how much you can afford to spend; therefore, you’re less likely to overspend and fall into debt.
- Build an emergency fund. Unexpected expenses, from car repairs to medical bills, can happen at any time. To avoid relying on credit cards or loans, save a small amount each month in an interest-bearing account, until you have enough to cover three to six months’ worth of expenses. This will help you to attain financial freedom.
- Avoid unnecessary expenses. This may mean skipping a morning latte or cooking at home instead of going out to eat. Small expenses add up quickly, so it’s essential to be mindful of where your money is going.
- Use credit wisely. If you have a credit card, pay the balance in full each month to avoid interest charges. Remember that a good credit score can help you get better interest rates on a vehicle or home loan.
- Track your spending. Whether you use a budgeting app or simply keep a spreadsheet, it’s important to review your expenses regularly and adjust your budget as necessary. This is the essence of good money management.
Tip: Struggling to settle your credit card and other debts? Debt consolidation may be your solution.