Question:
I am deeply indebted. I have three personal loans with Absa, African Bank and Nedbank. I also have three credit cards with Absa, Go Banking (Nedbank) and Bluebean (Standard Bank) as well as two cell phones on contract.

Before I go to a debt counsellor I just want to find out if is it possible to get a creditor who will consolidate my debts.

I do not have a property.

Answer:
There is no doubt that rising interest rates have forced most of us to reconsider our debts. Although this is a very tough exercise to go through, I commend you for wanting to do something before things become even more desperate.

When it comes to dealing with debt, there are two areas we can focus on to help change our outlook. Firstly, how we can deal with the debt we have and, secondly, how we can keep ourselves from making it worse.

The following guidelines can be used to help achieve this:

1. Pay off your most expensive debt first. With our current economic environment it is not unusual to pay between 22 percent and 26 percent interest on credit cards, so this is usually a good place to start. Compare this to your other debts and make a concerted effort to start settling your most expensive debt. You can do this by meeting the minimum required repayments on your other accounts and channelling a fixed amount (significantly above your minimum required repayment) into your most expensive account. Be very disciplined about this though – if you’re not, your position will not change!

2. Close your accounts as you repay them. Once you have settled your most expensive account, close it. Then move on to the next one, pay it off and do the same until you eventually have only one bank and one set of accounts. Ideally you would like as few accounts as possible as it keeps your costs low and is easier to control over time.

3. You can explore consolidating your debt into fewer accounts (ideally one) with lower interest rates. This is not always the best approach as banks typically need a form of security for these facilities and often offer rates that aren’t significantly better than what you already have. You can speak to each of your banks about whether this option would be available to you. Aside from potentially more attractive rates, you will also need to take a good look at the ongoing cost of such a facility in comparison to your existing costs to ensure that you will be better off altogether.

4. Downgrade your existing costs and channel your savings into your debt. At the moment you have two cell phone accounts. As with a bank account, a single cell phone account with a more beneficial contract will save you money over time. You can consider using the minimum airtime on one of your cell phones — the one with the highest average cost per minute — until your contract is up for renewal, and then cancel it. Until then, see if you can downgrade your cell phone contracts to cheaper levels.

5. Spend less. As painful as it may be, this is the time to sit down and do your monthly budget. It is often astonishing to see exactly how much money falls through the cracks every month. Spending a lot on takeaways? Rather make food for work or, better yet, start eating more healthily — an apple or two costs less than a Big Mac! Cutting down on luxury items (like satellite TV, eating out or the movies) until your debt is under control is always a good idea.

6. Pay cash. Do not buy anything on account. If you feel that it would be OK to pay a few months down the line for something you want today take a long, hard look at how it feels to be there now and then decide if it’s really worth it. You can start by drawing a fixed amount of cash every week for your lifestyle expenses and sticking to it. Leave your credit cards at home.

There is no easy way to get out of debt as it takes a lot of hard work. By taking the above to heart, you will gradually be able to get out of the hole your debt has dug for you. It is very difficult to change your behaviour to do this, but the reward of no longer needing to worry about debt is certainly worth it. Once you have settled into your new habits, the discipline will come more naturally and things should become easier to live with. Good luck — I know it is a hard road, but the destination is well worth the journey.

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