A step-by-step guide on how to manage debt

If you’re overwhelmed by your debt, it may be difficult to figure out how you will get your head above water again. 

We have a look at the steps you can take to regain control of your debt, and we consider how you can stay motivated while working through the process.  

Tip: Debt consolidation offers a single monthly repayment at a lower interest rate.

Take these steps to manage your debt

Velmah Nzembela, head of corporate affairs at Assupol Group, says that reducing your debt requires patience, more than anything.

“As South Africans, it’s normal for us to provide financial support to our immediate and extended families while depending on a limited disposable income. This poses a very real challenge to our efforts to save or reduce debt for a better tomorrow,” she says.

Nzembela believes that any plan to get out of debt needs to have clearly defined goals with realistic targets and timelines. She suggests taking the following steps.

1. Put together a monthly budget. This may seem tedious, but it will allow you to plan your finances ahead of time and make sure you’re allocating the right amount towards your debt.
2. Find and identify the biggest amounts owed to your creditors. This could also be the account that you pay the most interest towards each month.
3. Contact your bank and creditors and arrange a payment agreement. If you can reduce your largest debt expenses, you will have more disposable income and feel less inclined to take out more debt to carry you over to the next month.
4. Pay debts with the highest interest first. This is known as the avalanche method. Once you have paid off your account with the highest interest, you can move on to the account with the second-highest interest payments.
5. Pay your accounts on time. Now that you have your basics in order, you need to ensure that you stick with your credit agreements so that your credit score grows rather than declines.
6. Decrease impulsive or unplanned spending. Be strict with yourself and stick to your budget. It only takes one moment of weakness to undo all the progress you’ve made.
7. Consider debt consolidation. If you’re still struggling to get your debt under control, you can consolidate it, which will reduce your monthly repayments and give you some breathing room.
8. Beware of scams. Even if you’re feeling desperate, don’t succumb to opportunistic criminals who promise to “wipe your debt clean”. Be wise and stick to your plan.

Stay motivated

James Williams, head of marketing at Wonga, says that repaying large debts with high interest rates can be difficult and demotivating. However, it’s important to remember that even the smallest amount of progress is worthwhile. For example, one small additional payment on an interest-bearing account can reduce your overall cost of credit far into the future.

“Stay motivated by charting your progress, keeping a close eye on your accounts, and avoiding taking on new debt until your existing accounts are settled in full,” says Williams.

It’s also okay to ask for help. Find out whether debt consolidation can simplify what you owe.