Zim Digital Sunday Express
June 22, 2021

Understanding Debt situation using a 4-Step Debt Approach

Once you pay off the high interest one move on to the next till you finish off

 

By Tarie Manyonga

 

Statistics show that most Africans are heavily in consumer debt, due to the choices taken by individuals in their day to day lives which leads to lifestyle inflation.

I have designed this 4- step Debt Approach which can help individuals to understand why they are in debt and how they can work towards clearing it off.

Step 1 – What Happened to be in debt

The only way to financial freedom is asking yourself difficult questions like What Happened in the first place for one to be in debt. If this question is not answered you are bound to repeat the same mistakes. Ask yourself what happened was it an emergency, was it taking a loan to start a business, or buying a home or a car.

Did you take a loan when you started a family or you constantly find yourself borrowing each time you go out with friends? Understanding the root cause of why you took the debt will assist in providing answers on the best plan to repay and have a debt-free life.

 

Step 2 – Why it happened to be in debt

The next step is now understanding why you resorted to getting a loan. Was it because you didn’t have an emergency fund or they were no savings at all, to begin with? Why is it every time you end up borrowing money to cover your day-to-day expenses?

Is it because your income doesn’t cover your expenses or you living a lifestyle you can’t afford?

Understanding the Why part of why you in debt can assist you in understanding your relationship with money and that can help you start working on better habits that will lead you to financial freedom.

Step 3 – What is going to happen to pay off the debt

Once you have addressed the questions of why and what happened to be involved in debt, now will be the time to understand what you going to do to start paying off the debt. Listing down all the debt you have will give a roadmap on how much you actually owe. When listing out the amounts and the repayment period of each date, also adding the interest next to it.

After this exercise organise everything starting with the high interest one to the lower interest.

Paying off the higher interest will be sensible as the interest charges will be taking more money from your pocket.

This does not mean that you have to leave the other debts not paid, you need to pay the minimum instalments. Once you pay off the high interest one move on to the next till you finish off.

Step 4 – How to prevent having more debt

When you are paying off the debt, you need to be disciplined that you don’t borrow again because that will just create another financial mess.

This process can be the most difficult as you might have to cut down and scale down on your lifestyle just for a short while till you pay off the debt.

This is just a little sacrifice that will be worth in the long term as you will be freeing up other money which is tied up in debt. Lastly, understanding that debt can not be used as an extension to income will assist in working on changing the mindset.

The only way to prevent having more debt is having those little sacrifices in adjusting your lifestyle and committing to pay off.

Tarie Manyonga is a financial literacy expert.www.letstalkfinanceswithtarie.co.za

 

 

 

Money will always follow vision. Chase your purpose, and things fall into place

 

 

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