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5 Ways to Minimize Debt

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5 Ways to Minimize Debt

Debt is not all that bad. No really it isn’t.

Debt has been present in the world for a very VERY long time. Religious scriptures even speak about debt. Over the years debt has had a bad connotation to it. The main reason for that is because we don’t know how to manage our debt properly. The more we learn how to manage debt, the more we realize that debt can actually work to our advantage. It’s possible that you are have probably experienced or encountered debt. Most of us know the feeling of paying off a debt and not remembering what you bought with the money that created this debt. If you are tired of this feeling and want to minimize how much debt impacts your finances take these factors into consideration.

1. Be Wary Of the Access You Have to Debt

Financial institutions are businesses, and what do businesses do well? Advertise. It’s important to note that not every credit that a financial institution offers you is to your benefit. It may sound attractive with all the “cash backs”, “low interest rates”, “payment holidays”, “how this loan can change your life for the better” benefits they speak of, but in actual fact this is part and parcel of their marketing strategy to grow their businesses. The onus is on you to be diligent enough to know what is in your best interest.

2. Ramp Up Your Disposable Income

If you find yourself paying off a debt and it feels like it’s not ending and you really want to pay off this debt so you can free up some money. The best way to go about this is to increase your disposable income so that the money you have left over can be used to add towards your debt repayments. This will reduce the capital you owe on the debt which means you will eventually pay less interest and finish off the debt quicker. So removing a few of the expenses that are not necessary in your budget can go a long way in helping you reduce your debt.

3. Pay Off the Debts With Higher Interest Rates

Debt management needs you to be a little strategic. If you find yourself in a place where you have multiple debts raging from car repayments, personal loans and credit cards to name a few, what will be beneficial is to pay a higher amount to the debts that have higher interest rates. Here is why: Debt is made up primarily two components namely: interest and capital. Concentrating on the debts with higher interest rates can help you to reduce the capital you owe quicker and this will reduce the interest that you need to pay meaning that the debt can be paid off far quicker with less interest.

4. Save For Big Ticket Items

Saving up for your big ticket items that you generally can’t purchase now can be of high benefit to reducing how much debt you expose yourself to. Now that being said not everything can be saved for such as purchasing properties and cars. But there are some that just need you to save over a couple and months and you can happily purchase it debt free. The access to debt does not mean you have to use it every time or for every purchase.

5. Know the Difference Between Good and Bad Debt

Debt is not all that bad. No really it isn’t. What’s important is understanding the value you are getting out of getting the debt. This is the concept of opportunity cost. In this instance, analyse what benefits you are losing out on by acquiring a debt. The biggest one that comes to mind is the monthly expense you will incur to make sure that that you pay off the debt that you took. Whilst a capital lump sum may sound great the monthly repayment of this debt may not feel the same. Weighing what debt is beneficial to you is when you analyse what value the debt is going to bring to your life over the long haul. So stay away from acquiring debt for clothes, food, lifestyle and entertainment (bad debt). If you ever consider debt: purchasing a property, car and furthering your education may be considered – a good debt.

Using these tools when you are trying to manage your debt better or even when you feel overwhelmed by debt will help you along the way to reduce the debt you have or even eliminate all of it.

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Thandekile MolokoHead Wealth Manager

Thandekile Moloko is a Wealth Coach and Wealth Manager by profession. Her love for people and changing people’s lives lead her into the financial planning. She encompasses tenacity for finance, especially wealth management and personal financial management. With insurmountable experience gained in the industry, she has blazed the market with her expertise within the financial planning industry. With the intent of reaching a larger audience. In her wealth management career, she has changed many people’s lives and she changed the landscape of wealth management to be inclusive of those that need it the most. She is an avid believer in changing lives one financial situation at a time.

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