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26 Nov 2014

IF I HAD DEBT

Let me save myself from the embarrassment and admit it before you guys point it out; I am a bit of a bore. I am not big on TV watching and generally tend to dislike anything that has some hype around it. I don't know much about the Idols or Big Brother shows. My favourite though is that, I have never been in the position where I needed to fight debt other than the mortgage. I never paid a car installment. I know you may be thinking, "Pheeew! That is more boring than I expected". But I'm alive, not bored to death just yet.

The only problem with my boring nature, is that I am missing on an opportunity to write amazing posts about how I got out of debt. Everyone loves reading success stories. Especially the "zero to hero" type of stories. If I had debt at some point in my life, I would probably be stronger, wiser, more matured... except, that is not how I would choose to toughen up. I have an overactive imagination, which enables me to live in the boots of all sorts of people. Just the other day I was writing about how one can easily get out of debt. That post is the most loved around here.

If I had debt...
1. I would pay at least the minimum required on all my debts every month without fail. I would do this like my life depended on it. I really never understand why people just ignore their debt. 

2. I would cut all unnecessary expenses out of my budget. Only debt free people can afford these luxuries. Here goes what should be dumped in the bin:
  • Gym membership. Why are we even talking this? (-R700)
  • Expensive cellphone contract to be replaced by a cheaper one. (-R300)
  • DSTV/ pay TV would definitely go. Have you noticed how little time you have for TV? (-R800)
  • Choose public transportation where possible. In Gauteng we have Gautrain. But living closer to work is probably even better.
  • Eating out is sheer luxury. I would cook my own food most of the time. (-R500)
  • Shopping other than that of food. (-R1000)
  • Salon visits and other beauty expenditure. (-R500)
I made up figures here just to make it more interesting. After cutting all this expenditure (estimating it at R3800), their monthly cost would all go towards paying my debt. I know you need a clothing budget and all that. Take a small amount from that.

3. I would prioritise my debt according to the interest charged on each. Because I am a sucker for examples, let's go:
Credit Card 18%.... (minimum payment R1200)
Clothing Account 15% ...(minimum payment R600)
Personal Loan 11% ... (minimum payment R1500)
Car Loan 10.5% ... (minimum payment R6000)
Homeloan 9.5% ...(minimum payment R8000)

Exactly in that order, starting with the credit card debt, then the next biggest interest rate, until the cheapest debt to service. This way I end up paying the least amount possible overall.

4. As a plan to fast track the process, I would consolidate debt using my homeloan. I would get access from my homeloan or apply for a re-advance to pay up the rest of my debt. Remember that my homeloan is the cheapest debt I have. 9.5% interest rate is better than the 18% I am charged by my credit card service provider. After consolidating my debt, all that excess amount of money that I suddenly have will go towards the mortgage repayment. That takes my homeloan repayment from R8,000 to R17,300.
WOW! I had R9300 extra all along! Remember the R3800 you were dumping in all those expenses??? That takes my extra mortgage payments to R13,100 per month.

I would then sit back and watch the homeloan melt. With my eye set on the mortgage balance to take note of when it gets back to the amount it was before the debt consolidation process. I would most likely pay this amount up way before the time my car loan term was to lapse. I would not buy a new car during and immediately after this process.

5. If I had debt, I would most definitely get an extra source of income. Desperate times call for desperate measures. I would sell stuff or use my skills to get income elsewhere. I would even rent out a room in my space. I cant imagine that, but I think I would.

6. I would call a family meeting to let everyone know that all the funds available after basic expenditure will go towards paying the debt off. Wastage when it comes to food and any other household supplies would have to be avoided. Everyone would have to take showers to save water and electricity. If I had debt I would make a call for all of us to switch to frugal mode. That's how much I hate debt.

And finally, if you are busy with your debt war currently, know that you can conquer it. Its not as tough as it looks. Change the mindset, set goals with time frames and work hard to achieve them. Cutting some luxuries can be a temporary measure.
“Whether you think you can, or you think you can't--you're right.” Henry Ford

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