But this thinking gets us caught in an anti-wealth trap. We spend on our credit cards all year and use our bonus or 13th cheque to settle the debt, only to start the cycle again the next year. We are using those bonuses to pay off last year’s spending rather than investing and building wealth.
Understand your total outstanding debt by drawing up a spreadsheet with all your credit agreement information including the outstanding amount, monthly instalment, interest rate, fees and the date it will be paid off.
Rather than trying to increase the repayment amount on each loan, target the smallest debt first. If you can settle one debt quickly it will give you the motivation to keep going and free up more cash to target the next debt.
Let’s assume you have multiple credit facilities and owe a total of R50 000. You have done your budget, cut some spending and freed up R1 000 to use to pay off debt.
- Retail store account R3 000, current repayment R300 per month
- Clothing account R7 000, current repayment R500 per month
- Personal loan owing R10 000, current repayment R650
- Bank credit card R30 000, current repayment R2 500 per month
You have just paid off R50 000 worth of debt with just R1 000 out of your budget. Remember this only works if you close down the credit facilities as you pay them off, otherwise you will just go back into debt.
You now have no short-term debt and nearly R5 000 to start investing – all without relying on a windfall.
You don’t need a miracle, just discipline.