How to manage debt responsibly

With credit cards and store cards readily available, it’s quite easy to get into debt. And it can be hard to get out of debt! Here are 8 ways you can manage debt responsibly.

  1. Know how much debt you can afford

    Debt is almost impossible to avoid completely – very few of us would be able to buy a house or a car without borrowing money. That’s okay, as long as you manage your debt. Debt is only a problem when you struggle to pay your bills, are using one debt to pay another or need to take on more debt to afford life’s essentials.

    To work out how much debt you can afford, subtract your expenses from your income. If you have money left over, you can probably afford some debt. However, make sure you include all your expenses including stokvel contributions, savings and insurance policies.

  2. Be careful of taking store and credit cards

    These cards are easy to get, and easy to use. They come with a credit limit that is usually much higher than what we could afford to pay in a month. So it’s easy to buy more than we can afford.

    If you are disciplined with money and use these cards occasionally, they work very well. Store cards, for example, that let you pay off an item over 6 months interest-free can be used effectively without extra costs – as long as you do pay it off in that time. But you might find yourself over-spending and paying a lot of interest.

  3. Pay more than the minimum due on each month

    If you pay the minimum amount due on your cards and accounts, that usually means you are mostly paying the interest and you aren’t paying off much of your debt.

    When you pay more than the minimum due, you can pay the debt off earlier than expected. You’ve also acquired a good financial habit. Many believe that you should pay off your credit card every month. This is good advice but might not be possible if the amount owing has built up over time. So rather pay more than the minimum until the card is paid off and then look at spending only what you can pay off each month.

  4. Track your spending

    To avoid accumulating debt, you need to have a budget to determine what money you have, and to allocate where to spend it. Keep track of where you are spending your money and stop spending when you have spent what your budget plans for. Debt allows us to spend more than our budget – which is how many of us get into too much debt.

    You can find more information about budgeting, as well as a downloadable spreadsheet, here.

  5. Learn to say no

    If a friend proposes an expensive night out say no and think of a cheaper alternative. If you are offered a loan and can’t afford it – say no. If you find yourself being persuaded by special deals, once-in-a-lifetime opportunities or someone saying you need to act now, politely say: ‘No, thank you. I don’t want to take on more debt than I can afford’.

  6. Consider paying for everything with cash or debit card

    You can draw as much cash as you have budgeted to spend for the week or month and use only that. When you’ve used it, don’t spend on a credit card or draw more cash. Alternatively, you can use your debit card to pay for purchases. Just make sure you don’t go into overdraft!

  7. Lower your limits on your store and credit cards

    This is a great way to make sure you don’t overspend and get into too much debt. Find out what the credit limit is on all your credit cards and store accounts. If possible, lower the limit to make sure you don’t get into too much debt.

  8. Pay off your credit card or store account before you use it again

    While you are paying off the account, don’t carry on spending on that account. And when you’ve paid it off, think seriously about not using it again! Once you’ve paid it off, you’ll have some spare cash in your budget so you can use this to spend on a treat or save it for a family fun day or vacation.

Final thoughts

Managing your money well and avoiding getting into too much debt is a good financial habit. It starts with having a budget and saying no to things you can’t afford. And remember that when you say no to something, you are making sure you don’t get into financial difficulty later on.

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