Debt Management

Debt Management

We suggest working to a place where you are debt free!!!

Debt has the opposite effect of compounding interest on an investment and works against you.

Did you know:

  • that if you buy a house, borrowing the money from the bank and repaying that bond over 20 years, that you pay 2.5 times the initial debt?
  • The average interest rate on a credit card is 21%?
  • The maximum rate that may be charged on unsecured credit transactions (clothing accounts etc) is as follows: repo rate (5%) multiplied by 2.2 plus 20 percentage points = 31%!
  • On average you pay 30% more for a vehicle bought on a hire purchase (Bank Loan) over 60 months.

How to deal with debt!


  1. Prepare a list of all your credit cards, clothing accounts etc with the outstanding balance, the interest rate, the minimum payment percentage and the minimum payment according to the latest statement. The minimum payment percentage is usually between 2 and 2 1/2 per cent of your balance.
  2. Call every one of your credit providers and request a lower interest rate. You may be surprised at how quickly some of them will agree. Lower interest rates mean you can eliminate your credit card debt more quickly without increasing your payments.
  3. If your credit provider/s is not willing to reduce your interest rate, shop around for another provider with a more favourable rate that will allow you to transfer your balance.
  4. Compile a basic budget, money in, money out.
  5. Pay the minimum balance on each credit card / account each month, except the one with the highest interest rate. On the account with the highest interest rate, pay the minimum balance PLUS the additional amount you’ve identified in your budget.
  6. Pay your most ‘expensive’ debts off first. These are the accounts charging the highest interest, normally such as clothing and furniture accounts.
  7. Continue to do this until the one with the highest interest rate is settled and closed. Then take the amount you were paying on that credit card / account (which is now paid off) plus the amount of the minimum balance on the second account, and apply the total to the second one each month until the balance is paid off. Remember continue to pay the minimum balance on all the other credit cards. Proceed with this plan until you are debt free!
  8. Close any accounts which are not in use, and the once you’ve settled immediately.
  9. Don’t ignore a letter of demand. Always be proactive and take appropriate action. Contact your credit provider to discuss a possible solution if you have a problem repaying your debt.

Once you begin conquering your credit card balances, the worst thing to do is to begin using them again.

After repaying your debt

Use only debit cards – A debit card is similar to a credit card with one distinct difference. Whenever you make a purchase, money is subtracted from your account. You cannot spend more than what is in your account.

  • Pay cash. Paying cash forces you to spend only the money you have. If you don’t have the money this simply means you can’t afford it.

Individuals with property can use this to settle more expensive debt, but you must make sure you have the discipline to settle the “cheaper” debt as well, as soon as possible. A common mistake is that people argue that they can use the additional monthly saving and buy a newer vehicle or other assets/liabilities. Also remember that there’s cost involved in increasing your bond!!!

Cash is king!

For more advice contact the National Debt Mediation Association