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Suddenly someone stops in front of you, and you hit the brakes just before smashing into the back of him, spilling your coke all over your shirt and pants in the process. You curse and try to clean up, realising that you haven’t even paid off the account you bought these clothes on last month.
Home at last, you immediately sit down in front of the plasma TV you got on credit at the weekend, and will be paying off for the next two years. You order pizza on your credit card, then browse a popular online store for an hour, buying random CDs and a pair of shoes.
A couple of days later, you get a phone call from the bank informing you that you have exceeded your credit limit, and have 50 days to pay up. You ask how much you owe, and it’s four times what you earn in a month. Panic sets in.
Damage report
If you’ve suddenly found yourself immersed in a never-ending battle with credit, it’s time to change your lifestyle. If you’re using your monthly earnings to pay off credit, but then use the credit to get through the month, you fall into this category, and you need to take responsibility for your finances without delay.
First things first: find out how deep in debt you are, so you can identify a set figure that you need to pay off. Phone all your creditors and add together everything you owe – it’s going to be a big number, so prepare yourself.
But outstanding debt isn’t the only thing you must take into account. List all your monthly costs, from food to booze to electricity to petrol. Your aim here is to find out how much you’re spending each month versus how much you’re earning.
However bad the damage is, don’t panic. With a little forward planning, and a dedicated attitude, you can get out of debt and back behind that red line for good. But you need to make a decision to fix the problem, even if it means making sacrifices.
Make a plan
Once you’ve worked out what you owe, and what you can’t avoid spending every month, add these figures together and put them next to your monthly income. Your aim: shorten the gap between these two numbers.
You need to get into a situation where you are paying off either the interest of your debt every month, or a portion of your debt per month – preferably both. This means you need to earn as much as possible every month, either through picking up another job, or seriously cutting down on expenses.
Credit is the reason you are in this mess, so now’s the time to get rid of those credit cards and accounts. If you don’t have access to credit, you won’t be tempted to use it. Cut that card up right now, and don’t look back. Soon you’ll only be spending money you actually have.
You have to realise that if you don’t take drastic action now, your debt problem is just going to worsen. So dedicate yourself to your financial plan, and stick to it, no matter what.
Take action
It’s time to take back control of your finances.
Set up an income and expenses sheet, and write down every single transaction you make every single day. This way you can keep perfect track of all money coming in and going out.
Set spending limits for yourself and stick to them. If you’ve used up the airtime you assigned for the month, too bad. They can call you.
Talk to your bank about setting up a debt repayment order. This automatically starts paying off your debt on a monthly basis, and stops you spending that money on anything else. The more you can dedicate to this, the better.
Until you’re square with your creditors, those shopping sprees and Sunday lunches out are going to have to wait. Spend some time at the bank, and have a consultant work out the optimal payback scheme for you – they’ll be more than happy to help, considering you owe them money.
If you don’t need it, drop it
Think about the way you live, especially how you spend your free time. What are the things in your life that you don’t really need? You must learn to live without them for now, because all they’re doing at present is adding to your debt.
Start crossing off unnecessary expenses. Satellite TV might be great to have, but you really can live without it. That electric blanket might keep you warm at night, but it’s adding to your bills, and you’ll still be able to sleep with a hot-water bottle.
If you drive to work, get into a lift-club. Ride sharing with one or more people will at the very least halve your petrol expenses. If a lift-club isn’t possible, then it’s time to support public transport, even if it means waking up earlier in the mornings.
Unplug that telephone, and set a limit on your mobile. If you have internet, but only use it for fun, get rid of it. Start shopping conservatively, buy in bulk, and steer away from unnecessary luxuries.
Get used to staying in
You might be the life of the party, but remember that going out is an expensive hobby, and something you’ll have to do without until you can afford it again. Not hitting the clubs on a Friday certainly won’t kill you. And if your friends ask you why you’re laying low, tell them the truth – they’ll understand.
Remember that the rise in the oil price is one of life’s few constants, so those visits to far-away friends or family need to be controlled for now. Just phone them up and explain you can’t afford to visit that much anymore thanks to the situation in Iraq.
Another constant is the fact that you have to eat. With a bit of planning, you can save hundreds on food costs by setting out your weekly diet for the month, and then buying as much as you can in one go. This will save you the cost of driving to the store every day, and incur savings by buying in bulk.
If you’re living in a home with a spare room, consider renting it out. Of course you need to be prepared to deal with the issues of becoming a landlord, but that extra bit of rent will really go a long way towards settling your accounts.
Every little bit counts
The sooner you realise that every penny saved is a penny earned, the sooner you’re going to get yourself up and running again. Instead of parking underground at cost, park outside for free. The more you can walk to wherever you need to get to, the better.
What you save every day adds up over the week, which grows over the month and can become quite a substantial figure in the course of a year. The converse is true too: the little things you pay for on a daily basis add up and contribute to your debt in the long term.
If you’ve lent money to people in the past, now’s the time to collect. It doesn’t matter who they are – most of the time you’ll need the money more than they do. The less credit you have, the less interest you’re paying on that credit, so get your money back today, however embarrassing the call might be.
Drastic measures
If you’re really in trouble, and the interest on your credit alone is too much to counter-balance, you may have to swallow your pride and ask for help. Remember that you have a family, who (generally speaking) loves you. Just ask (nicely). You’ll probably find them more than willing to assist.
Many parents will agree to an interest-free loan; this way you can pay them back instead of the bank, and you can set a period of time for this according to your situation.
But if this isn’t an option, you may need to start selling some of your more valuable items, like televisions, computers or couches. Or even your car. You might not like the idea of public transport, but millions of people around the world use it, and if the sale of your car can cancel your debt, it could be a solid option.
Remember that all the sacrifices you make to get yourself back on track won’t be in vain. Any material goods you sell you can always replace later, and though you may feel you’re losing a lot, you’ll eventually get to a point where the only person you owe anything is yourself.
- (Warren Vonk, Health24, July 2006)
