Getting out of debt is not easy, especially when you are broke and struggling to make ends meet – surviving from paycheck to paycheck.
Trying to pay off debt while broke may result in missed payments, overdraft fees, and ultimately a poor credit score.
But, with a great strategy and consistency, you can be able to pay off your debts even when you are broke. Find out how you can achieve this and claim your financial freedom.
1. Make repayment a priority
As much as you are broke, paying off your debts should be your number one priority. Your debts are not going anywhere and choosing to ignore them will not help you in any way but will result in a negative credit record. Own up to your debts and prioritise them.
2. Find out how much you owe
A clear indication of how much you owe will put you in a better position to set up your financial goals and targets.
Knowing how much you owe can be intimidating but, if you are going to pay it off you need to know the exact figure.
Have a list of all your outstanding statements, add it all up with the interest rate, late fees, and possible penalties you might have to pay.
3. Control your spending
If you are already struggling to pay off your existing debt, then you must stop adding more to it. Avoid using your credit card and taking out any new unsecured debts until your current debts are under control.
Buy what you need cash and try to save enough for bigger purchases. In essence, stay away from unnecessary debt and interest payments.
4. Increase your income
Find ways to make an extra income. If you haven’t given it some thought now is the right time to start thinking of what you could do as a side hustle to earn extra income from what you are already getting.
A side hustle can be what you need to empower yourself and make your debt payoff journey less stressful. Think of how you can monetize your skills and competencies.
Getting out of debt involves a lifestyle change so, if you have to make a career shift to be able to pay off your debts successfully then so be it.
If you are not sure about how to go about making extra money don’t worry, here are 10 Proven Ways to Make Money and 5 Ways To Make Money From Home In South Africa.
5. Create a budget and stick to it
A budget is a simple plan of how much money you receive and how much you spend. A budget plan will help you manage your finances better as you will know how much your expenses are and how much you are left with after all the spending and payments.
Get started with your plan and categorise your expenses as essential and non-essential before putting them in more specific categories.
6. Review your monthly expenses
Check your monthly expenses to see what you are spending more on. With each expense be realistic with yourself and ask yourself if you can survive with or without that expenditure.
This will help you to only spend on the necessary things and enable you to pay off your debts without a hassle. You might have to make some temporary sacrifices.
7. Negotiate for a lower interest rate
A higher interest rate might be what is standing between you and settling your debts – being free from credit. Call your creditors and find out if you can’t negotiate a lower interest rate.
A positive payment history and excellent credit score can put you in a better position to qualify for a lower interest rate. You might be surprised how many creditors are willing to reduce your interest rate so don’t be afraid to negotiate.
With a lower interest rate, you will be able to pay off your debt much faster.
8. Make your payments on time
To avoid extra fees added to your initial debt, make your payments before the cut-off date. Be consistent with your payments as this will not only put you in the good financial standing of your debt but, will also improve your credit score.
9. Take it easy
Don’t pressurise yourself, take it one step at a time, and have a debt repayment strategy. It will be impossible for you to pay off your debt all at once so concentrate on paying off one debt at a time to make your payment process more effective.
You have two ways to weigh your debts either by checking each debt balance and paying off the smallest amounts first or by checking the interest rate for each and paying the high-interest rate debt first.
10. Seek debt relief and consider a consolidation loan
If your debt is unmanageable then you might want to look at debt relief options. There are debt relief companies in South Africa such as Debt Counsellors SA and Debt Rescue that seek to assist people that are in debt manage their debt better.
With such intervention, you will be placed under debt review, and you will pay a single and reduced payment that you can afford.
Debt relief will protect you from your creditors taking legal action against you.
A debt consolidation loan might even be helpful when you feel trapped in your debts.
Be more aware of your financial management trends and relearn your financial habits. This will help you to manage your current debts and assist in avoiding more debt. Remember even in debt, you too do have rights, find out what your rights are when you are in debt.