Can a modern family, couple, or business individual live without incurring any debt?
This is perfectly possible.
One of the major reasons why many South Africans are getting into more and more debt is the super easy access to expensive credit facilities such as credit cards. Just think about the times when people did not use any overdraft facilities, credit cards or personal loans. If they could manage their finances without these tools, then you can do it too.
How did they do it?
It is natural for modern people to be tempted to have more of the things which they want today irrespective of their finances. When you use money now, you will have less free money to use tomorrow. You will have to repay not only what you borrowed initially but interest as well. Often, new loans are used for repaying existing debt and this makes it even harder for individuals and households to escape from this vicious circle.
This is not to say that living solely on your means is easy. However, it is the better alternative compare to struggling with debt. It is possible for you to clear your existing debt and to get a taste of the true financial freedom. You just have to know that no matter how tough things get, you can achieve your goals with determination and discipline.
The most important thing which you need for getting out of debt and for staying debt-free is a proper plan. You have to set precise goals and draw the methods for reaching these goals. The main methods which you have to use include budget management, spending no more than what you have earned, reducing your credit and negotiating with your current creditors.
The preparation of a budget is the fundamental component of any strategy for getting out of debt and staying debt-free. You have to know exactly how much you will spend on what every month. It is now easier to prepare a budget with the use of modern budgeting software and online tools especially designed for families.
If your expenses exceed your monthly income, you have to plan for spending cuts. It is important that you remove the luxuries from your spending list first. These are all the items which may be beneficial, but which you actually do not need. Similarly, you can postpone spending on some items which are not urgently needed. For example, you can postpone the fixing of a heating unit from the beginning of the summer to the beginning of the autumn.
It is essential that you prepare a budget in the beginning of every month. Otherwise, the risk of overspending becomes much higher.
It is best if you use cash for making all purchases and for paying all bills. That way, you will know exactly how much money you have left at any given time and avoid overspending. One simple but clever strategy is to keep the money which you have allocated to each type of expense in a separate box or envelope. That way, you will be able to control your budget even more effectively. The key thing is not to transfer money from one box to another, unless it is left over.
You have to figure out which types of credit tools you are using less carefully than you have to. For most people, these are the overdraft facilities and the credit cards. The overdraft facilities are particularly tricky as you may not have a clear idea of whether you are spending money from your salary or borrowing from the bank. That way, you may end up with a much larger debt than expected. Similarly, you can keep spending with your credit card without realising how much debt you have accumulated.
At the same time, credit cards and overdraft facilities have some of the highest interest rates among all credit products. That is why the best way to get rid of the debt on them is to consolidate it. You can top up your mortgage loan or take out a special debt consolidation loan, which is backed by the equity that you own in your house. Either way, you will pay a much lower interest rate. It is best if you avoid using an overdraft facility in the future. You can keep one or two credit cards, but you should use them within the limits set in your budget or for emergencies only.
Debt Repayment Negotiation
All creditors prefer to deal directly with you rather than to use the services of collection agencies. You simply have to step forwards and to negotiate the most comfortable debt repayment terms for you. Most creditors will offer a repayment plan which enables you to repay your debt in equal instalments over a fixed period of time.
This is a good option as long as the payments will not exceed your budget by too much. It is actually better compared than postponing the whole payment for a later date as you may not be able to safe enough cash. It may go without saying, but you should not use credit cards or similar facilities with high interest to settle debt. Debt consolidation is the better option.
Now you know what you have to do in order to get rid of debt for good. You will feel complete satisfaction when you are finally free from all burdening financial obligations. If you stay disciplined in the future, you will be able to save money and use it for enjoying small spoils in life.