It can be scary to realise you’re drowning in an ocean of debt but don’t lose heart. Owning that uneasy truth is the hardest part of debt recovery: the rest is easy cupcakes by comparison (home-baked, not shop-bought, of course). Here’s how to deal…
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WHEN IN DEBT:
1. DON’T: borrow against your credit card to pay off creditors. Rather borrow against your home loan. Interest rates are more favourable and, added to this, your home is an appreciating asset which offsets the additional debt. And if you don’t have a home loan? Arranging an overdraft on your current or savings account before maxing out your credit card. Again, the interest rate will be better.
2. DON’T: play hard-to-get with creditors. Be upfront. Explain your situation and try to negotiate your way out of it. They may give you a period of grace or extend the time period, during which you must repay.
3. DON’T: go to micro-lenders or debt consolidators. Never get into more debt to repay debt.
4. DO: repay your debt as soon as possible. It’s viewed as the best investment you can make because South Africa’s interest rates are high. As soon as you’re in credit, your money starts working for you.
5. DO: the only time to think about borrowing more money is if you have the opportunity to buy a reasonably priced property. This is because it will appreciate in value more quickly than the growth of the debt.
6. DO: pay off your small debts before applying for a larger loan. This saves you interest and enhances your credit profile.
7. DON’T: panic and over-service your debts. Instead, draw up a realistic budget that means you both service your debts and have ready cash to cover your basic expenses.
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