Stop Making These Five Debt Mistakes
Consumers often feel overwhelmed with the amount of repayments they have to make on a monthly basis. Mortgage, tertiary education, vehicle repayments, credit cards… But debt can be properly managed; however, it is the classic mistakes that South Africans make that form a common thread, leaving them wrapped in a mountain of debt.
According to Wikus Olivier, debt counsellor at DebtSafe, universally, there are a number of common financial mistakes that individuals often make resulting in debt. However, these can be mitigated if discipline is practiced and spending behaviour changes are made.
Living outside of your financial means
Fundamentally, the only route out of debt is to stop living beyond your financial means. Not living according to a budget is arguably the most prevalent financial blunder that individuals make when it comes to managing their debt. It is therefore important that individuals realise that getting out of debt and staying out of debt depends vastly on that of developing and sticking to a strict and realistic budget. Ideally, the budget that you create should account for your debt payments. Furthermore, it should also allow for you to pay more than the minimum toward your debt.
Paying only the minimum
Paying only the minimum amount on debt is yet another way that individuals land in debt. If you cannot make payment in full, ensure that you are able to pay as much as possible as minimum payments and the interest it comes with can cost you a lot in the long run. If this mistake has already been made it can be avoided by simply paying your credit card debt in full monthly. Redoing your budget so that you are able to increase the amount of your payments, lowering your expenses as well as looking for ways to earn extra money are all ways to increase your payments.
Not prioritising properly leads to payments being made in no particular order. Olivier recommends making credit card payments first before tackling other payments such as vehicle repayments and mortgage. “Interest rates on credit card debt are usually higher than other forms of debt like a mortgage. You can then go ahead with making payments on your house and other necessities such as utilities, medical care and groceries. This is however subject to priority.
Credit card abuse
Abusing the power of your credit card is yet another classic example of why many individuals struggle with debt. Many times we find ourselves charging something to our credit cards even though we have the adequate amount of cash to pay for or debit it.
Wikus recommends paying by cash or debit where possible for purchases such as utilities and groceries. Purchasing these on credit repeatedly can eventually add up, significantly affecting the amount of your credit balance.
Related: How To Maximise Your Money
Paying off debt, with debt
Lastly, paying off credit by taking out more credit almost always leads to an endless cycle of debt. Examples such as taking a loan from one bank to pay off a loan you received from another has often debilitated the financial situations of many. If this is case, the services of a financial advisor or planner is recommended. In the same way, debt counselling should also be considered.
“While debt is something many individuals cannot live without, adequate planning, knowing exactly where your finances go each month and altering your spending habits to include only that which you need can assist you in living a debt free,” concludes Olivier.