If you’ve been overwhelmed by debt, it may be difficult to remember what it was like to have a clear credit history and extra spending money in the bank.
We have a look at the distinction between having debt and being overindebted, and we consider some tips on how to move forward with your life. We then find out what life would be like without massive debt.
Tip: Debt consolidation may be the best way to get your debt in line – find out more.
Having debt versus being overindebted
The majority of credit-ready adults have debt. This may include unsecured debt, such as a personal loan or a credit card, or secured debt, such as a home loan or vehicle finance.
There’s nothing wrong with being in debt, as long as you’re managing to meet your monthly repayments. Credit can be a useful tool when it’s employed responsibly.
However, DebtBusters, a leading debt counselling company, has found that South Africans are borrowing 25% more than they did five years ago. On average, those seeking debt assistance had not increased their income over this period, and had turned to unsecured debt to support themselves and their families.
This can very readily lead to overindebtedness, which can keep you up at night and cause a great deal of day-to-day stress.
Tip: If you think that you’re overindebted, it may be time to consider debt consolidation.
How to escape overindebtedness
Ayanda Ndimande, strategic business development manager for retail credit at Sanlam, says that the idea of being debt-free, or not being overindebted, seems unattainable to many of us.
However, she believes that with the right approach to your finances, you can chip away at the mountain of debt and have a clear view of your finances again.
Here are some tips on how to get your finances back in order:
- Speak to your creditors: If you’re not meeting your monthly debt obligations, you need to reach out to your creditors and explain that you cannot afford your repayments. They are often understanding, and they can help you adjust your repayments to more realistically suit your budget.
- Reduce your luxury expenses: You need to be very strict with your finances until you are in the clear. Try to cut unnecessary spending and focus on reducing your debt. Once this is under control, you can celebrate by treating yourself to something special.
- Try to increase your income: If there’s an opportunity to grow your income, you should jump at it. If you can make more money, you will be able to settle your excess debt sooner. Maybe you can help a friend with their side-hustle, or perhaps you can negotiate a raise.
A future without overwhelming debt
Ndimande says that without debt, your credit score will improve. This means that you may eventually qualify for credit for big-ticket expenses, such as a home loan or a car, as credit providers will see you as low-risk.
She adds that you will also have more disposable income, which, if managed properly, will contribute to wealth creation and a stable financial portfolio.
“In essence, you will move out of the red and return to the black, which is the most fashionable colour for a financial portfolio,” says Ndimande.
She explains that being debt-free will also enable you to set savings goals for the things you have always dreamed about and you will be able to spoil yourself a little.
“You will finally be able to take down the umbrella that was protecting you from the looming storm of debt and move forward with your life,” says Ndimande.
Tip: By consolidating your debt, you will be able to simplify your debt repayments – click here for more.