If you have started the new year in debt then you are not alone as many South Africans are carrying large amounts of debt in the form of credit cards and loans, but if you want to start 2021 debt free then this is your year to get your debt under control and get out of debt.
Here are 5 ways to get out of debt in 2020.
Start with a Strict Budget
The main reason that many people end up in debt is because they don’t track their expenses, which results in them overspending. If you want to get out of your debt, then the first thing you will need to learn is to spend wisely and getting on a budget will help.
Having a budget makes it easier to see what all your essential costs are, how much money you have left after all your bills are paid and what non-essentials you can cut back on.
You may see that your spending too much on takeaways or paying for streaming services that you are not using. If you cut these out for a year then you will have more money to put towards your debt. So take a look at where you can reduce costs and any extra savings can go towards debt.
Give Your Income a Boost with a Second Income
If you are deep in debt then you may need to do more than just cutting back on spending to pay it off, which means you will need to look at boosting your income with a second job. The income you earn from this second job can be used solely for paying off debt as your main income will be used to service your bills.
Pay Balances Strategically
If you are carrying multiple balances on different credit cards then you will need to tackle the one that costs you the most first, which are the ones that have the highest interest rates. You may want to start with your smaller debts first and then your larger ones, but instead of focusing on the different amounts you owe, rather focus on what each balance is costing you.
Paying off the highest interest debt first will take longer, but you will save money in the long run once the debt is paid, which will free up some extra money that can then be used to tackle your next highest costing debt and so on.
Make Debt More Affordable
Your debt will be easier to pay down when the interest rate is lower. If you have credit card debt, then see if your issuer is willing to negotiate a lower rate. If you are not able to get a lower rate, then look at a credit card that offers 0% interest for a set amount of time. You can then transfer your balances onto a new card with a lower rate, however, if you choose to do this you will need to be able to pay the balance off before the special rate ends, otherwise, you will be hit with interest.
Another option is to go for a consolidation loan, which is where you combine multiple debts under one new loan, so that you have one monthly repayment. The interest rate on these loans is often lower and as you will get a payment plan for a set period of time, so you won’t be paying debt off for years to come.
Start Building Up an Emergency Fund
Even if you manage to pay off your existing debt you will want to avoid it again in the future and this can be done by having an emergency fund. You need to save at least three to six months of living expenses, so that when something unexpected pops up, you won’t need to rely on your credit card to pay it. Along with paying off your debt in 2020, you should also make having an emergency fund a goal and a priority.
Being debt free is good for your wallet, your credit score and your mental health. Focusing on paying down or off your debt this year will put you in better financial shape for next year.