9 Practical ways to reduce debt

Debt is a fact of life, but it can overwhelm us if we take on too much and struggle to repay it. Although it may not be possible to get out of debt completely, especially if you’re servicing a car- or home loan, there are a few ways to bring your debt down to manageable levels.

We investigate nine practical ways to reduce your debt and keep future debt to a minimum.

Tip: Struggling with your debt? Consider debt consolidation. Find out more here.

Tips for getting out of debt

1. Stop shopping

Although this won’t get you out of debt, it’s the first step to ensuring that your situation doesn’t further deteriorate.

“It’s almost impossible to make a dent in your debt if you continue spending,” says Sue Torr, managing director of Crue Invest. “Whether you cut up your credit cards, freeze them, or lock them in the safe, put mechanisms in place to ensure that you aren’t tempted to spend further.”

2. Start right-sizing

Ester Ochse, product head at FNB Retail Money Management, says you should buy or rent a smaller home or drive a smaller car if bigger assets are too expensive to maintain.

“This may be an emotional process, but it will free up cash on a few fronts, reducing instalments, maintenance costs and potentially insurance,” she points out. “Extra cash can be used to pay off debt, save for an emergency, or invest in a longer-term goal.”

3. Use a debt reduction calculator

Make a list of all of your loans, debts, and account information, along with the applicable interest rates and repayment periods, so you know exactly how much must be paid, and when. Next, use a debt reduction calculator to devise a payment plan that will work for you.

“There are plenty of free online debt reduction calculators to choose from,” says Torr. “Enter all of your debt information and allow the software to calculate a payment plan for you.”

4. Prepare a budget

Though rarely considered fun, preparing a budget will give you a realistic idea of your income versus your expenses. To do this effectively, it helps to trawl through your bank statements. 

“Be sure to take into account all of your ‘hidden’ costs, such as parking fees, tips, coffee on the run, Uber rides, and convenience meals,” Torr says.

“Work out a way to reduce your monthly expenditure by at least 10%. To do this, you may need to be ruthless. Cut back on luxuries such as DStv, monthly subscriptions and gym memberships by downgrading to smaller bouquets or packages.”

Ochse notes that a budgeting tool such as Smart Budget can help you to work out where your finances are going, and whether you can reduce some of that spending.

5. Sell items for cash

Even if you’re not a hoarder, chances are that you have assets you can sell.

“Every cent really does count, so make a concerted effort to sell anything you no longer need. Use the cash to make lump sum payments towards paying off your debt,” Torr recommends.

6. Make more money

This is easier said than done and may require some creative thinking.

“Apart from negotiating an increase with your employer, consider earning money from your hobby, waiting tables, doing promotional work after hours and on weekends, or tutoring. The gig economy is perfect for generating after-hours income,” says Torr.

7. Use bonuses or tax refunds to settle debt

If you’re fortunate enough to get a bonus or tax refund, don’t blow it all on luxuries.

“Don’t be tempted to spend any financial windfalls on unnecessary items,” Torr cautions. “Remember, this frugality isn’t forever. You’re just employing a short-term strategy to get yourself out of debt and back on the path to financial freedom”

Once you’ve repaid an account, close it and commit to using only cash in future. Once you’ve settled all of your debt, start putting money away towards an emergency fund, which should comprise three to six months’ worth of income.

8. Don’t cancel your insurance or medical aid

Cancelling your insurances may seem like a quick fix to free up cash, but you never know when you may need them. You could end up in a worse financial position if something happens to you or your assets.

“Ask your insurer if you can reduce your premium – be careful of increasing the excess too much – or opt for a cheaper medical aid plan,” Ochse recommends.

9. Consider debt consolidation

“Consolidating all of your credit into one loan makes it easier to manage your debt and unlocks monthly cashflow,” Ochse points out.

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