Are you like many South Africans that are currently paying off credit? In 2020, settling outstanding credit should be a priority for consumers according to the National Credit Regulator. However, this task might seem daunting, but using the snowball strategy could be the way for you to pay off your credit and start the new decade debt free.
With a plan in place, you can pay your debts off faster, saving you interest and increasing your monthly disposable income.
How Snowballing Debt Works
With the snowball method, you start paying off the smallest debts with the highest interest rates first, which will then release more funds to tackle your bigger debt. A series of small wins will motivate you through your debt pay off. It will make debt seem more manageable and you will have a way to gain control.
How to Start
The first thing to do is to list your debts in order from the smallest to the biggest. Make the usual minimum payment on all your debts apart from the smallest one, as you will want to pay more towards this one, so that it can be paid off as quickly as possible. Once the smallest debt is paid off, you will have extra funds to use for the next smallest debt. Continue in this fashion until all debts have been paid off.
Why Does Paying Debt Off this Way Work?
With this method, you are paying off smaller debts, which usually have higher interest rates, which will then free up more money that can be used to pay off the bigger debts, so you will see results a lot sooner. It will also force you to focus on getting your budget from the red to the black.
More Money Management Tips
There is a number of money management tips to help pay your credit. Here are some top tips for 2020 for managing your money.
You should only take credit for the right reasons and ask yourself if the value of the item will outlive the credit repayment period. If you are looking to buy a computer, for instance, for your business, then you will be able to generate income that will continue long after you have repaid the credit.
You need to compare the total cost of credit when taking a loan. Many people will only compare the interest rate, but you need to also look at other costs like admin fees and credit insurance.
If you are deep in debt then you might want to consider a debt consolidation loan, where your debt is combined into one single loan, which has a lower monthly repayment amount and you only need to keep track of one payment and one interest.
You will need to settle your full outstanding amount on your credit card if you want to take advantage of the 55-day interest free period. This means you need to clear the balance before the 55 days interest free is over.
A good rule to consider is the 50/30/20 budget. This is where 50% of your income goes towards your needs like utilities, groceries, insurance, medical aid and so on. 30% of your income goes towards your wants like shopping, dining out and hobbies. The last 20% should be used to pay off debts and savings.
Make this the year that you get out of debt and stay out of debt, so you can be financially healthy.