How to pay off a debt


According to the National Credit Regulator, nearly 25 million people in South Africa are in debt, and 40% of them are in arrears. It’s a staggering number.

From payday loans and credit cards to overdrafts and in-store clothing accounts, debt has become a vicious cycle for many.

How to get out of debt? By putting a plan in place. Although it sounds easy, many people just don’t do it.

Let’s be frank – money is an emotional topic for the majority of people, as debt is often accompanied by emotions of anxiety, shame and helplessness.

To start your debt-free journey, here are some steps you can take:


Because most people tend to be overwhelmed, they ignore their finances in hopes that somehow the debt will go away on its own.

This is the ostrich mentality – at the sight of danger, the ostrich sticks its head in the sand and hopes the danger will be past when it sticks its head out.

Unfortunately for the ostrich, it is unaware that it is still fully exposed and visible to its enemy. Unfortunately, when it comes to money, this kind of behavior will only land you in deeper trouble.

You need to make a list of all your debts and know exactly how much and to whom you owe. You can only change what you face.

From there, you can choose which method you will use to pay off your debt.

Pay off the debt with the highest interest rate first


I often do workshops where I ask people if they know the interest rate they are paying on the various debts they are carrying and 90% of the time the definite answer is no.

This is caused by our fixation on the final amount we pay. For example, when buying a car, many people don’t look at how the dealership arrived at the final payment amount, as long as it seems to fit their budget.

Knowing what interest rate is charged on your debt is actually knowing what the debt is actually costing you. The debt with the highest interest rate is the most expensive debt – regardless of the outstanding balance.

If you were to use the method of paying off debt with the highest interest first, the first debt you would tackle would be your overdraft, followed by your personal loan, your credit card and then the clothing store account. .

This means that you will focus your efforts and spend any extra money on the debt that is costing you the most.

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The snowball method


With the snowball method, you pay off the smallest debt entirely first. Once it’s paid off, you take what you used to pay in the now crushed debt to tackle the next smaller debt.

You keep doing this until you get to the final debt.

While the first method makes financial sense, the snowball method is more psychologically rewarding because of the immense satisfaction that comes with sticking to a plan and seeing it through.

A person is less likely to be overwhelmed when motivated – it’s all about small wins in the snowball method.

If you were using the snowball method, the first debt you would look to pay off would be the store account as it has the smallest outstanding balance.

After paying it off, you will move on and pay off the overdraft by increasing your monthly contribution by the amount you just freed up by overwriting the store account.

You continue in this way until the highest outstanding balance is paid off.

Paying off debt isn’t easy, but the benefits are worth it.

Unfortunately, most people hope for a windfall of money instead of developing a plan to get out of debt, and even if they do get that windfall, either as a bonus or, worse, by cashing in their pension fund, they find themselves in the same debt situation.

This is because they treated the injury and not the source of the problem. Paying off debt isn’t just about the debt itself, it’s about acknowledging your behavior with money and changing your habits.

At the end of the day, choose one method to follow – and avoid going into debt.

Makhu is a financial coach


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