BUSINESS NEWS - Debt is an unavoidable part of the human experience.
Moreover, you and other South Africans now face a unique challenge; consumerist culture, unexpected financial curveballs and the relentless selling of instant gratification.
Combine that with easy access to credit, and it becomes the perfect storm of losing control of your finances.
That is why debt management is an essential strategy to bring and keep your financial situation under control.
Continuously implementing a debt management plan, can ensure that you:
- Become empowered to manage your financial situation proactively
- Avoid losing control of your debt
- Find a way out of indebtedness
- Stay on track to reach your financial goals
Having authority over your finances can help you experience true financial freedom and turn your money into a powerful ally. But, if debt is left unchecked, it will become your ruthless enemy.
With this being said, what are the five steps to carry out a successful debt management plan?
Step 1: Revise your financial situation
The first step is to get an idea of your current financial position. Answer these three questions to get your first debt management step in check:
- What is your monthly income after deductions?
- What does your payment history on your bank statements reflect?
- What does your credit record portray?
Did you know that you can pull your record for free, every year, at any registered credit bureau?
Step 2: Compare your current income amount to your debt amount(s)
The second step to proper debt management is to calculate your current debt-to-income ratio.
Here’s how in a nutshell:
- Add up all your monthly debts,
- Divide it by your income amount before any deductions (gross salary amount),
- Multiply by 100,
- And, your total/the final percentage will then give you your debt-to-income ratio.
**Note: Any percentage above 40 is an alert sign. The higher the percentage, the closer you are to over-indebtedness.
