If you’re unable to pay off your credit card, or find it difficult to control your credit card spending, here are some strategies for managing your credit card debt effectively.

Credit Cards – Are They a Good Idea?

Most of us spend on our credit cards, often on a daily basis. The benefits we enjoy from rewards programmes and the convenience of swiping our cards instead of paying cash, not to mention the status that many consumers enjoy when they swipe their gold or platinum cards.

Credit cards serve a very useful purpose – they allow us to charge our expenses as the month goes on, and repay them when our salaries are paid. Credit cards are also essential for booking air tickets, making hotel reservations, and paying deposits – they are even required before many patients are admitted to private hospitals in South Africa. The key to managing your credit card is not to spend more than you can afford to repay – here’s how and why:

Using Your Credit Card Wisely

• If you charge purchases to your credit card, make sure that you can pay the total balance off at the end of the month. Interest on credit card balances is very high, and you’ll end up losing hundreds of Rand each month in interest payments alone.

• If you don’t receive SMS notifications when your card is swiped, ask your bank to activate this feature right away. Each time you swipe your card, you’ll receive an SMS which tells you how much was spent and your total credit card balance – you can use this to ensure that you stay within your monthly budget

• Resist the urge to apply for more than one credit card. You may think that having three cards is harmless enough, but the amount of debt you could run up is enormous. By using one credit card with a reasonable limit, you’ll keep your spending habits out of temptation’s path as you go about your day-to-day purchases. However, if you’re a disciplined spender, you could keep an emergency credit card in the safe in case of a medical emergency or other serious expense.

If you have accumulated credit card debt and are unable to pay it off, you may need to stop using your card altogether for a while. You’ll need to pay the monthly interest of course, but you could opt to use your cheque card for purchases and ensure that you spend less than you earn so that your credit card debt can be paid off. Once you’ve repaid your credit card in full, you can decide whether to use it again on a regular basis, or save it for emergency expenses only.

Charlie Bray from IndieTribe

An excerpt of what Charlie had to say about How To Implement Debt Management That Works:

“The first part of this book is likely to make most people feel better about their debt mountain, because the saying, ‘There’s always someone worse off than you’, is evidenced here. I can hear sighs of relief emitting as they read the misfortunes of others and begin to put their own problems in perspective.”

And about How to Implement a Budget that Works:

“Borrowing can run away with you. Budgeting can become a balancing act that would challenge the best tightrope artist. A gravity defying juggling act. And that’s where Nico’s book comes into its own.

It comprehensively covers how to design a budget, how to run it, how to reduce outgoings, and even how to increase income.”

Read the full review.

Charlie also interviewed Nico. This is what he had to say:

“I found both books to be mightily impressive and essential reading for those of us that sometimes find it difficult to plot a path through life’s financial pitfalls.

I wanted to find out more about what inspired the books and some of the horror stories that bring them to life.”

Read the full interview.

Managing Your Debt Situation

Debt has a sneaky way of creeping up on people: for months or even years, it seems like the easiest thing on earth to buy a new car or charge that big-screen TV you’ve always wanted to your credit card. The trouble is, you’ll reach a point where you can’t make all your monthly payments anymore, and this may happen when you least expect it.

If you’re unable to make your monthly debt payments at all, or if your repayments are using up every cent of your surplus income, you need to take action immediately. Waiting for better times to come or hoping that you’ll get a generous raise in the New Year is not a workable solution – you need to reduce your debt immediately to avoid bad debts.

Who Can Help You?

Many people believe that their debts are their own problem, and that seeking advice is pointless. Others may be embarrassed to discuss their financial situation and shy away from consulting a financial advisor on the issue of debt. If you’ve read one of Northwood’s eBooks on debt management, you’ll know that a certified financial advisor is your first port of call when your debts seem overwhelming.

When you meet with your financial advisor, you’ll be taken through the financial planning process one step at a time. By analysing your income and expenses and finding ways of freeing up some of your money each month, your financial advisor may be able to help you repay your debts and regain your financial freedom. However, if your debts are so large that this is not possible, your financial advisor may recommend debt counselling to resolve your problem.

The Debt Counselling Process

The National Credit Act, or NCA, makes provision for debt counsellors to assist consumers who are in debt and are unable to make their payments. The process involves your debt counsellor approaching your creditors and negotiating a repayment plan for you which will allow you to repay your debts over time. During this process, you can expect not to be able to apply for any further credit as you honour your debts and return to financial good health.

Getting Started

If you’ve read Northwood’s eBooks on financial planning and debt management, you’ll know that budgeting is an important part of every successful investment strategy: after all, your monthly surplus will form the capital for your investments.

To get started with your budget, you’ll need either a blank piece of paper or a blank excel worksheet – either is fine. Create two columns for yourself: one for income and the other for expenses. You’ll then be able to set up your budget as follows:

• Under the income column, write down all the money you make each month. This could be your salary, rental income on secondary properties, or interest you’re earning on a money market account. Add these sums of money together, and you’ll know your total income.
• Under the expenses column, you’ll need to list your monthly expenses, from bond payments to grocery bills and everything in between. At this point you’ll notice something: if you’re like most people, it will take a lot longer to list your expenses than it took to list your income – with all those expenses, budgeting is a crucial process! Adding all these amounts together, you’ll know your total expenses.
• Once you’ve calculated your total income and expenses, you’ll be ready to see whether your budget balances: your total income minus total expenses will give you your monthly surplus.

Is Your Monthly Surplus Positive?

If your monthly surplus is positive, you can congratulate yourself – your monthly budget is balanced. However, you should ensure that you’re not spending more than 75% of your income (after tax) each month, because you need to invest your surplus for your retirement. You can also use your surplus to create savings for a new car, a holiday, or furnishings for your home – whatever you have in mind, it’s always better to pay cash for it and avoid debts and interest payments.

If your monthly repayments are a little too high, or if you’re failing to make payments altogether, you may be in danger of becoming a bad debtor. This could have several consequences for you, depending on how much debt you have, what type of debt it is, and what your income is.

Individuals with bad debt

Examples of bad debts that an individual person could accrue include credit card debt, bond payments, retail account payments, and personal loans. If you are behind on any of these payments, or are struggling to make them each month, you should speak to your creditors about relaxing your repayment terms without delay. If you fail to make payments, you could find your property taken away by the bank, or you may lose your possessions as they are seized by your creditors for failure to make payments.

If you’re concerned about making your payments, you should approach the bank (in the case of a credit card, home loan, or car payment) or your creditors (for example, a retail store) to inform them that your payment may be late. If you are granted a grace period – an extension on your payment date – you’ll need to make the payment within that time. If you find that you are unable to make all your payments in a given month, except in a month where you had a large unexpected expense, you should consider debt counselling as a serious option.

Business Debt

If you are sole proprietor of a company, you may be personally liable for all the debts owed by the business. Even if your company is not a sole proprietorship, bad debts will result in judgements against your business and will affect your bottom line – if your business is unable to make a profit each month due to debt, you are running a serious risk of bankruptcy. If you find yourself in this situation, contact your financial advisor immediately and request an urgent meeting to resolve the matter.

Last year it was revealed that 6000 South Africans apply for debt counselling every month and this figure may be set to rise as the cost of living increases while consumers ignore the warning signs and continue to rack up debts.

If you’re currently in debt, or are concerned about the number of accounts which arrive each month and your ability to pay them all, there may still be time to turn your fortunes around and live debt-free. The consequences of bad debts – including blacklisting and the repossession of your belongings – are not pleasant and can be easily avoided by avoiding debt itself.

Avoiding Debt – Where to Begin 

For most people earning a salary, avoiding debt involves balancing a monthly budget. Self-employed people and business owners need to be especially careful about expenses because their incomes fluctuate from month to month. Whether you work for yourself or someone else, your monthly expenses should not exceed your income – in fact, there should be surplus left over each month for you to invest.

Many people land up in debt without realising it, because they have made purchases which they thought were necessary – or were they? Certain basic expenses such as rent or bond payments, car payments, insurance, petrol, and other fixed monthly payments have to be made and are not negotiable. For this reason, it’s important to choose the price of your car and home wisely before you purchase – this will ensure that your monthly payments don’t cripple you financially.

Once you’ve covered your basic fixed expenses, turn your attention to the purchases you make which tend to cost more or less, depending on what you buy. Choosing grocery items which are on special each week and adjusting your meal planning accordingly is one way of saving on expenses, while cutting back on a daily stop at the coffee shop or reading the news online instead of a newspaper each day are just two examples of small purchases which add up – you could save thousands of Rand each month by doing this.

If you’d like to learn more about debt management, Northwood’s range of eBooks offers advice on all areas of financial planning, budgeting, and more. By keeping your expenses low and living debt-free, you’ll soon be in a position where your money works for you – not the other way round.

• Missed a bond repayment
• Missed a car payment
• Credit card balance is going up instead of down
• Borrowing from one source to pay another

If you, or someone close to you, is in this situation, don’t despair – there is a debt solution that suits you.

Debt: a worldwide problem

Debt is not confined to certain countries or people, so if you are in need of debt help, you are not alone. The recent financial crisis in North America and Europe happened as a result of uncontrolled spending by some of the biggest banking institutions. Debt seems to sneak up on people, which is probably why the crisis came as a surprise to many. At the time of borrowing people feel good about what they’ve purchased, making them feel powerful, successful and rich. The crisis has made many people sit up and take notice of their debt situation and start working on a debt solution.

Do you need help with debt?

Debt counselling is becoming a frequently requested task for professionals to assist South Africans with, as many people are unable to make their repayments for loans or goods purchased. People are becoming desperate to clear their debt. If you are one of these, don’t delay in approaching your financial advisor to plan a debt solution. It’ll be the first and an important step towards being debt-free.

If you feel embarrassed about needing debt help – don’t be. Financial advisors are there to handle debt problems and have heard and seen the worst of them, so please be honest about the all the debts you have incurred. Your financial advisor needs to know this in order to help you.

Take someone with you if this makes you feel more comfortable. If the debt problem is a joint problem, for example a married couple or business partners, then consult your financial advisor together to find a debt solution.

Debt Solution: don’t give up hope!

Once you have started working on a debt solution with your debt counsellor or financial adviser you will gain more peace of mind, as you have confronted the debt problem. It is the first step in the process of repaying your debt and, while it may not be an easy task, your stress and anxiety related to your debt problems is being dealt with positively. You will reach a debt solution and become better at debt management.

Northwood offers a booklet which will assist you in finding help with debt: How to Implement Debt Management that Works. If you don’t have a financial adviser and would like more information, contact us for advice.

• Book 1: How to Implement Debt Management that Works
• Book 2: How to Implement a Budget that Works