8 Steps To Financial Fitness

Losing weight and getting out of debt are two of the most popular New Year’s Resolutions. Yet, like all other resolutions most people give up within a few weeks and start the new year on the same boat steering towards the dreaded financial storm. At its worst, debt is a form of slavery – it hinders freedom and stifles growth. With 2015 having already set its sails it is not too late to change direction and steer towards financial well-being.

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Chantel Cronje, Legal Advisor at Legal & Tax says you should set yourself a goal by thinking about what you would do with freedom from debt. Without having to pay loans or credit cards, you would have the freedom to choose where your income goes, the freedom to save, to have an emergency fund, to renovate your house, to place your children in A-list tertiary institutions, or to finally go on that luxurious island holiday. But it’s one thing to dream the ideal and something completely different to actually strive towards it.

Courtesy of the Legal & Tax debt counselling team, here are some tips that will help you in your efforts to become debt free in 2015:

Buckle down and budget

Creating a budget to track your income and your expenses is crucial to getting out of debt in a shorter period of time. Trim your expenses! Go over each item on your budget and ask yourself, ‘how can I make this number smaller?’ It may involve cancelling services that you rarely use like a gym membership, or services that you don’t really need, like monthly satellite subscription. It will also involve reducing the amount of times that you eat out or go to the movies. The more committed you are, the easier it will be for you to give up some of the unnecessary spending.

Track your spending and address habitual patterns

Without knowing where your salary goes, it’s impossible to even think of making necessary changes. To track your spending, keep all the receipts for cash, debit and credit card purchases or sign up with your bank for SMS services where you can keep track of all debit card purchases and your income balance after each deduction . Most importantly, make time to review your spending patterns at the end of the month. Often, spending is nothing, but a mere habit that can either financially make or break us.

Make a conscious decision to stop new debt

The idea is to focus solely on the debt that you currently have so that you can develop a plan to pay it off quickly. By continuing to use debt to fund your lifestyle all efforts at becoming debt free are futile.

Up your debt repayment percentage

Putting at least 15 percent of your monthly income toward credit card debt and loans will help you pay down those obligations much quicker since most credit card companies only ask you to pay a slight percentage of the outstanding balance each month. Making only the minimum payments means that your debt balances are collecting interest as each month goes by. Paying off large chunks of your debt within a few months could save you a significant amount of money on interest payments alone and it could improve your credit score.

Create a buffer between yourself and debt

Financial advisors are quick to emphasise the importance of an emergency fund. If there’s no money in the bank and an emergency does happen, how are you going to pay for it? For most people, credit cards become the funding source for such emergencies. If you are trying to get out of debt then you need to put a buffer between you and debt, and that is exactly what an emergency fund does.

Find ways to earn extra cash

Whether it means working overtime or finding a part-time job, the mere fact that you are working for an extra income means that you will have less time to spend money. Becoming debt free takes discipline and determination – you will need to really put yourself to the test, and what better way of doing so than by working your way out of debt.

Reward yourself

Becoming debt free doesn’t mean you need to turn into a penny-pincher. When you start making progress towards becoming debt free, do reward yourself. Maybe at this stage you can afford (without making new debt) a weekend away with the family. You might also find that you will enjoy it more than those credit card holidays. Now is also the time to wake up to and enjoy the simpler things in life, things previously taken for granted, such as quiet time with the family, a picnic, DVD’s and popcorn or exploring a hobby. Be thankful for what you have, enjoying and appreciating life does not need to be a costly affair.

Seek help

If you have tried and failed to become debt free, debt counselling is recommended. The South African government has introduced a Debt Counselling Programme through the National Credit Act to assist over-indebted consumers. Over indebted consumers are those not able to meet their monthly commitments, as their expenses far exceed their income. NCR Registered Debt Counsellors are appointed to rehabilitate consumers by negotiating with creditors for reduced monthly repayments.