Debt is a major problem in this country. While not everyone has store credit or a credit card, those that do typically carry a balance. The interest rate on a credit card balance is usually between 10-30% per annum.
These high interest rates make it difficult for people to pay down their debt - especially if only making the minimum payment.
In fact, just making minimum payments can make even the smallest balance over a decade to pay off and thousands of Rands in finance charges. It’s no wonder getting out of debt seems so hard.There are plenty of strategies you could use to reduce or eliminate debt. One debt reducing strategy that has worked for hundreds of people is the debt snowball strategy. The method was made popular by Dave Ramsey’s ‘ 7 steps for getting out of debt and getting your financial life in order’.
The is quite simple, takes very little time to setup and most important – you can see results on a regular basis to keep you motivated.
Once you have made the commitment to stop increasing your debt-load, the next step is to setup a plan to payoff your debt.
Here’s how the Debt Snowball Plan works:
1. List all of your debts in order of smallest balance to largest with the minimum payment on each.
2. Also list the interest rate on each. If you have two similar balances, list the highest interest rate account first as shown in the example below.
3. Determine how much you can pay towards your debts each month. Make the minimums on all of the accounts except for the first account (smallest balance) on the list. Put any and all extra money towards this account. Maybe it’s an extra R50 a month. It is important to pay at least the minimum on all your debt accounts to avoid late fees and a hike in interest rates.
4. Once the first debt account is paid off, take the money (minimum payment + extra) being paid on account #1 and apply it to what you were paying on account #2.
5. Repeat until all accounts are paid off.
Finally, keep in mind that this process still takes time. There is no magic method of paying off debt, so realize that it will still take months or even a few years to become completely debt-free. But what we're doing is putting a process in place to make sure that you can get out of debt as soon as possible. You can speed up the process if you continue to pay even more money towards your debt as your budget allows.