Advanced Adulting: Managing your debt

It can be a fine balance to manage your debt – car payments, mortgages, credit cards, loans you’ve taken out etc. But there are serious consequences if you don’t – from arrears interest to legal action, as well as struggling to get more credit in the future. Your best defence is to be well informed and in the know about the consequences and how to avoid them. Here are a few tips to get you started:

Prioritise!

Budgeting carefully for your account payments is very important. Luxuries and extras like eating out, airtime and clothes are things you can live without or at least cut down on.

Do you find yourself running out of money before the end of the month? It’s not a fun situation to be in, but how you react to it could make the difference to what you have to deal with later. How about a mindset shift like “spend less” rather than “borrow more”?

Buying on credit, although a seemingly easy and obvious route to go to avoid running out of money, is not something you should make a habit of. It’s wiser to avoid using credit for non-essentials if you know you’re going to have a tough time paying it back or you’ll find yourself caught in an infinite payback loop.  Credit should be respected. Ideally it should be there to help you in emergencies or to make money you know you’ll have later available now.

All or nothing?

If you’re using your entire credit limit every month and aren’t paying off what’s owing in full at the end of each month, this is a warning sign that debt is getting a hold on you. You’re leaving yourself short if you have an emergency and this has a negative impact on your credit score.

You be the boss of your credit card.

You don’t have to pay everything you owe to keep your credit card in good standing. However, you must at least make the minimum monthly payment on time, each month. But remember that you’ll pay interest on your outstanding balance and the amount you owe just keeps increasing every month. Think about it like this, the money you’re paying on interest is money you could’ve been spending on yourself.

On the other hand, if you pay the full amount outstanding on your credit card within the interest-free period you generally aren’t charged interest. It may be easier said than done, but perhaps this could be the ultimate goal that you should strive for?

Recognise the best of enemies: Arrears and your credit score

If you miss a single month’s payment, you’re in arrears. It’s that simple.

Your credit provider can charge you arrear interest, which is interest that is charged on the arrear amount, and other costs such as default administration charges. It’s bad news and missing a payment just ends up costing you more money and stress.

On top of that, being in arrears is also bad for your credit score. Even paying one day late counts as a late payment and shows on your credit record. If in future, you apply for credit, a credit provider will look at this and it will influence their decision on whether or not to approve your application.

When the going gets rough, ask for help

According to the National Credit Act, credit providers are not allowed to take your ID book/passport if you don’t pay your debt. However, they can take legal action against you.

Ignoring a debt problem only makes it worse because interest and other charges  keep adding up. Also, borrowing money to pay off debt tends to get you further into debt because of even more interest payments.

So, if you are unable to make your payments, ask for help from your credit provider by discussing the possibility of a new payment plan. A payment arrangement won’t make your debt go away, but it will give you a more affordable payment plan that’ll be more manageable for you.

You have the option of voluntary surrender, which is when you give the asset back and the credit provider sells it so you only pay what’s left of your debt. You can also apply for debt review, where you’re declared over-indebted and your debt is restructured into affordable monthly payments.

Adulting is hard work and has its fair share of stress. However, being in the know and making conscious choices when it comes to managing debt can make the difference between an adulting nightmare and an adulting achievement.

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