“In 2011 after getting advice through City Press I managed to pay off all my debt. I have since gotten married and we bought a house and a car. Now we are in debt and a financial mess. I have two credit cards totaling R27 000, an overdraft of R21 100 plus a revolving credit loan of R11 500 and battle to service these. I thought of selling the car but life without it would not be practical as I have to drop our daughter off at day care and my wife at her stop for the lift club,” writes Mpho.
Maya replies: It must be very disappointing to have cleared all your debts only to find that you are back in the same position. I remember when you contacted City Press about your previous debts you were advised by FNB not to attempt to buy a house and car as soon as you were married as it would put too much financial strain on you.
Getting out of debt requires a change in attitude towards your money. The key here is that you change the way you look at your life. You need to be grateful and thankful for what you have rather than always wishing you had more – that is what gets you into debt.
The only way for you to make a real change is to sit down with your wife and to make a commitment to changing your lifestyle so that one day you will have real wealth – money in the bank, not money owing to the bank.
Your car is costing you R3 400 a month with insurance. Find out from the bank how much is outstanding and then find out how much you would get if you sold the car. If you can settle the bulk of the car loan by selling it, that may be the only way out. If you don’t make some serious choices now and as a result you fail to meet your car repayments, it will be taken from you and sold for next to nothing.
Alternatively if you have savings you may need to cash these in to settle your debts. There is no point earning 10% on savings but paying 30% in interest. Make sure however that you keep some aside for emergencies so you do not have to go into debt again due to a crisis.
The rule is to always settle your short-term debts first and cut off all lines of credit – credit is just not an option right now. Your revolving credit is very dangerous as it keeps you in debt as there is no end date to that loan and this should be targeted first.
If you sell your car you could use a small portion towards meeting your basic monthly expenses (food, electricity) as you won’t be using your credit anymore to pay for day-to-day needs. Then pay an extra R2 500 into the revolving credit and have it paid off in a few months. Alternatively settle the loan with your savings.
Suddenly you no longer have that debt and you can use the money you were paying into the revolving credit to settle your overdraft and then your credit card. Your debts will start to fall like dominoes as long as you take on no further debt.
Write up a proper budget and work out how long it will take you to be free of your short-term debt; this will provide a goal and keep you motivated. With determination you will be debt-free within a year and then you can consider getting a car again. This time save up cash and buy a basic second-hand car for R50 000 with no debt.
Getting out of debt will change your life. Right now R6 700 of your hard-earned money is going to debt – imagine not having to pay that out each month! Once you are debt free, focus on building back your savings.
It will take determination and commitment but I believe within a year you will change your life. Make this a family project: put up a wall chart showing how you are doing on your goals. I suggest you get a copy of The Total Money Makeover by Dave Ramsey, as it will provide you with inspiration and a plan.
You can do it, really you can! But you must do it now before you get further indebted and legal action is taken.