Debt management guide

Debt often becomes a part of life from the moment we take out our first loan. Managing it wisely is essential to maintaining financial stability and avoiding potential pitfalls.

This guide will equip you with the tools to help you take control of your finances and make informed decisions about debt. We look at the different types of debt you may encounter, and share tips on how to improve your money-management skills.

What is debt management?

Most South Africans have debts to pay, and there are different ways to settle them.  

Debt management refers to a process whereby you control your debt through assessing your financial situation, creating a budget, and drawing up a manageable repayment plan.

If you’re struggling with repayments but are not yet overindebted, debt management can be the solution. 

You risk becoming overindebted if more than 30% of your monthly income goes towards repaying debt.

Whatever your situation, it’s vital to manage your debt to set you on a path to a better financial future.

Types of debt

Unsecured debt

Unsecured debt refers to debt that does not have collateral – such as a house or a car – as security. Examples include credit card debt or a personal loan.

Since you don’t have to provide an asset as security, the lender faces a higher risk if you stop repaying your unsecured debt.

This is why unsecured loans typically attract higher interest rates than secured loans.

Secured debt

With a secured loan, the bank holds an asset – such as your car or home – as collateral. For example, your house serves as “security” for your home loan – if you stop making repayments, the bank can sell it to recover its money.

The benefits of debt management

Most of us see debt as a burden. However, when used wisely, it can be a powerful tool for building wealth strategically and in a disciplined way.

Well-managed debt can help you buy a home, finance a business, or invest in income-producing assets. 

The key is careful debt management, which prevents you from getting into financial difficulty.

Careful debt management can help you build a sound credit history, improve your credit score, and make significant purchases.

The consequence of poor debt management

Unfortunately, not everyone can manage their debt effectively. The cost of living and high interest rates place consumers under pressure, leading to debt strain or even default.

If your debt becomes unmanageable, you may become overindebted, meaning you have more debt than you can manage to repay with your income.

If this happens, you may need debt management assistance.

DebtBusters, South Africa’s leading debt experts, can assist in several ways.

Expert guidance

DebtBusters offers free financial assessments to help you manage debt and improve your financial position.

Tailored debt repayment plans

A DebtBusters debt expert can create a personalised debt repayment plan with lower interest rates and new repayment terms that will suit your budget.

Financial education

DebtBusters educates clients on how to reduce and manage debt and become debt free. This helps you control your finances and make good decisions about your monthly repayments.

Debt management tools

DebtBusters supplies you with helpful debt management tools so you can work your way out of debt and gain financial independence.

These tools include:

• Your credit report 
• A payments and open accounts monitor
• A risk calculator
• An income vs debt repayment calculator

Reduction in repayments

If you’re overindebted and enter formal debt counselling, which is a legal process, a debt expert will negotiate a new repayment plan with your creditors on your behalf.

If you stick to the new plan, your repayment amounts will reduce, and your cash flow will increase.

This will help you manage your debt while freeing up money for your daily needs.

Tips for effective debt management

Don’t let debt consume your life.

Learn how to manage your debt effectively to pay what you owe, live within your means, and even start saving. Here are some tips to assist you.

1. Understand your debt

Firstly, understand your debt. You need to know exactly how much you owe, how much interest you pay, and who your creditors are.

2. Create a budget

Secondly, learn to create and use a budget. This will help you track your monthly income and expenses to determine how much you can pay towards debt.

3. Prioritise your debts

Thirdly, make debt repayment a priority. Pay high-interest debts first, to reduce the amount you’ll pay over time.

4. Make more than the minimum payment

Finally, ensure that you make more than the minimum payments on your debts.

If you only make the minimum payment, you’ll end up paying more interest over time. Paying off your debt faster means you’ll save money on interest.

Start your journey to debt freedom with DebtBusters

If you can’t repay your debt, consider debt counselling, a solution offered by DebtBusters.

DebtBusters helps create a manageable repayment plan, negotiates with creditors for lower interest rates, protects you from legal action, and unlocks cash so you’re not out of pocket.

Taking action to address your debt will also help to reduce anxiety and stress related to your finances. Find out more.