It may surprise you to know that a staggering 60% of households currently find themselves struggling to meet their financial obligations. There have been several influencing factors for this state of affairs, such as drastically increasing costs of transport and electricity as well as growing inflation, so much so that many often turn to friends and family for financial support and advice.
Even though these cultural mechanisms may offer some relief, even if temporary, lasting solutions are required in order to improve household financial resilience and at the heart of this for those who are struggling is sound Debt Management Practices. We have compiled a few relatively simple measures which can greatly help alleviate the growing burden of debt and put you on the path to financial freedom.
Have a Plan
Even though so many are in situations with unmanageable debt, relatively few household tackle this in a systematic way. It is highly recommended to draw up a budget, whether it is monthly, weekly or bi-weekly and follow it. Additionally you should keep a detailed account of all income and expenditure, so that you have a better picture of where every penny goes. Check out Money Academy for free advice on saving and budgeting.
No More Debt
This is really a self-explanatory point. Unless in emergency cases or under guidance of a qualified debt councillor, you should not make any further debt and tackle the debt you currently have.
Is it a Want or a Need?
While having a plan and avoiding the spiral of further debt, as a consumer you need to find ways to reduce expenditure and while many may say that it is not possible, often this is not completely true. An easy way to decide, is once you have all the expenditure information and items from the last month, you can write each item down under one or two columns, wants or needs. This will also help you better identify any potential things you could be saving on- savings that could help to more quickly reduce your debt levels which really saves you more in the long run.
Tackle the Big Debts First
This does not necessarily mean the debts with the largest amounts, but does mean those with the highest interest rates. This is because, the quicker these bills are paid off, the less you generally pay! It may seem unfeasible if the highest interest rates are for larger items such as a home loan or vehicle purchase, but you can surely identify some of the smaller debt items with high interest rates and make it a point to pay them off first. This can be done through diverting any additional funds available, regardless of how small, towards this. One could also opt for debt consolidation, but once again you should best consult with a professional before doing this on your own, which brings up the next point.
Debt consolidation is basically when you make debt with a lower interest rate and/or higher repayment period in order to repay smaller amounts with a higher interest rate and/or lower repayments period. This is usually done when consumers find themselves unable to pay their debts and have enough money for everyday expenses. As mentioned, a qualified debt counsellor will properly be able to advise you on this.
These steps and measures may seem insignificant or even impossible to implement, but can be the difference between swimming and drowning.