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How do I get out of debt I can't afford

Written by Moku | 05-Feb-2024 13:13:33

If you find yourself unable to afford to pay all your debt, wishing it away or hoping that it will resolve itself will not work.  You should first draw up a budget with which you track your monthly income, expenses and debt obligations. By doing this for at least 2 months, you will be able to determine if you have unnecessary expenses or places where you can cut down so that you can free up some money, and use that money to pay towards paying off your debt.  If you still find you have no room to cut down on expenses, you should go under debt counselling at Meerkat.

 

How can I get myself out of debt fast?

If, after using a budget, you have found that you can save some money, you can use this money towards paying off your debt. There are two strategies you can implement if you have some money to pay off your debt. 

 

What are the 3 biggest strategies for paying down debt?

1: The Debt Snowball Method

This is one of the most effective strategies for paying down debt quickly and efficiently. This method, popularized by financial expert Dave Ramsey, focuses on tackling your debts one by one, starting with the smallest balance.

Here's how it works: first, make a list of all your debts, including credit cards, loans, and any other outstanding balances. Order them from smallest to largest balance. While it may seem counterintuitive to focus on the smallest debts first, this method is designed to give you quick wins and keep you motivated throughout the debt repayment process.

Once you have your list, it's time to take action. Make minimum payments on all your debts except for the smallest one. Allocate any extra funds you have towards paying off this smallest debt as quickly as possible. Whether it's cutting back on expenses, taking on a side gig, or redirecting your tax refund, every dollar counts.

2: The Debt Avalanche method

This is another powerful strategy for paying down debt effectively and efficiently. While the Debt Snowball method focuses on tackling debts from the smallest balance to the largest, the Debt Avalanche method prioritizes debts based on their interest rates.

Here's how it works: similar to the Debt Snowball method, make a list of all your debts, including credit cards, loans, and outstanding balances. However, instead of ordering them from smallest to largest balance, order them from highest to lowest interest rate.

Once you have your list, it's time to take action. Make minimum payments on all your debts except for the one with the highest interest rate. Allocate any extra funds you have towards paying off this high-interest debt as quickly as possible. By targeting the debt with the highest interest rate first, you'll be minimizing the overall interest you'll have to pay in the long run.

As you successfully pay off the highest interest rate debt, move on to the next debt on your list with the next highest interest rate. Repeat this process until you have paid off all your debts.

3: Debt Counselling (debt review)

If you can't afford to pay off your debt and you've created a budget to establish this, you need to go under debt counselling. With debt counselling your monthly debt installment is reduced, making it more affordable for you to manage. 

What is debt counselling?

Debt counselling, also known as debt review, is a programme that was introduced by The National Credit Act (NCA) to assist South African consumers who were struggling to pay off their debt. It's a regulated process which means all processes, including the fees involved, are regulated. 

How does debt counselling work?

If, after a financial assessment, you are found to be over-indebted (unable to pay your monthly debt obligations), a Debt Counsellor will work out a repayment plan by reducing your monthly debt installment. This is possible because a Debt Counsellor will approach your creditors and request that they reduce the interest rate on your loans. The creditors will also, at this point, agree to the new repayment plan.

Important quick facts about debt counselling

  • You can reduce your monthly debt installment by up to 50%. 
  • You can reduce the interest rate on your loans, potentially saving you money on your capital debt amount owed. This means you could end up paying back less money!
  • You will temporarily lose access to further credit. You won't be able to apply for more loans. 

Who performs debt counselling?

  • Debt counselling services should only be offered by Debt Counsellors registered with the National Credit Regulator (NCR). David O'Brien, Founder & CEO of Meerkat is a registered Debt Counsellor NCRDC 2613.

You must be sure that the individual who is offering you this service is well qualified to do so. You must research that they are qualified to do this by cross referencing that they are registered on the NCR website.

Why do I not have access to credit when under debt review?

Debt review is a process implemented by the NCR to assist consumers to pay back their debts. Taking additional credit out during this time would impact existing creditor payments and would result in an individual being in a worse financial position.

If you are undergoing debt counselling, this means that you are already over-indebted and can’t afford to repay your current debts. Any additional loans, including debt consolidation, will only complicate your situation. Adding to your existing debt will only hinder the process.

How long will it take for an individual to start to feel relief from the stress of their debts?

Almost immediately. Within the first 5 days, Meerkat will have drafted a proposal to restructure the debts and have created a provisional more affordable repayment plan.

 

4: If you want to manage your debt, you can also consider a debt consolidation loan

A debt consolidation loan is another option to consider if you want to manage your debt effectively. This type of loan allows you to combine all your existing debts into one single loan. By doing so, you can simplify your monthly payments.

To obtain a debt consolidation loan, you will need to apply with a financial institution or a reputable lender. They will assess your financial situation, including your income, expenses, and credit history, to determine if you qualify for the loan. For this you would need to have a good credit score. If approved, the lender will provide you with the funds to pay off your existing debts, leaving you with only one loan to repay.

One of the advantages of a debt consolidation loan is that it can help you regain control over your finances. Instead of juggling multiple payments and due dates, you will only have to worry about making a single monthly payment. This can make budgeting and managing your expenses much easier.

Disadvantages of a consolidation loan

The drawback of obtaining a consolidation loan is that having a good credit score is essential, as banks will evaluate your risk profile to determine whether you can truly afford the loan. Even if your loan application is approved, you may receive a higher interest rate based on your risk profile and ability to repay the loan.

The only real way to pay off your debt if you can't afford it is with debt counselling

Debt counselling is a valuable programme that will provide you with the guidance and support you need to overcome your financial challenges. By working with a qualified Debt Counsellor, you can develop a personalized repayment plan that fits your budget and helps you regain control of your finances.

One of the key benefits of debt counselling is that it allows you to reduce your monthly debt installment by up to 50%. This can provide significant relief and make your debt more manageable, allowing you to make consistent progress towards becoming debt-free. Additionally, debt counselling can also help you negotiate with your creditors to reduce the interest rates on your loans, potentially saving you money on the total amount owed.

While debt counselling does temporarily restrict your access to further credit, it is an important step towards achieving long-term financial stability. By focusing on paying off your existing debts and improving your financial habits, you can rebuild your creditworthiness and create a solid foundation for a brighter financial future.

If you're feeling overwhelmed by your debts and struggling to make ends meet, there is hope with debt counselling at Meerkat. Take the first step towards financial freedom by completing this simple contact form. Remember, you don't have to face your debts alone – help is available to guide you on your journey towards a brighter financial future.

Who is Meerkat?

Meerkat is a financial wellness company committed to empowering South African consumers to maximize their financial potential. We specialize in negotiating debt repayments, offering affordable insurance solutions, and assisting you in building an emergency fund for a secure future. Experience the Meerkat difference by filling out the contact form on our website and receiving a complimentary callback from our dedicated team today.

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