Three tips to beat your December debt

STRUGGLING to recover from your December debt? You are not alone. In fact, you wouldn’t believe the number of people who get themselves into trouble over December.

“Holiday debt is the gift that keeps on taking away large chunks of money from your pocket. And this debt can be with you the whole year, or even longer. If you fell into the debt trap this past December, here are my pointers for getting out of it, as quickly as possible,” said financial psychologist Winnie Kunene.

1. Sit down and work out how bad it really is – and be honest.

You need to do a calculation of how bad your debt situation really is. This means adding up your credit cards, personal loans, retail cards and any money you may have borrowed from friends and family. Include the debt you had before the holidays. You need to know how much you owe in total.

For now, if you have a car loan or a home loan, you can leave those out of the calculation.

2. Don’t just pay back the minimum amount you owe

You have the power to influence the extent to which all this debt takes control of your life. Understand that the banks and retailers make money off the interest that you pay them when you owe them money. The longer you owe them money, the more interest you pay. Therefore, it is in your best interests to get rid of debt as quickly as possible by overpaying on all your repayments.

3. Choose your debt-beating method

There are two main approaches to paying off debt. The first is the snowball method. In this method, you identify the line of credit with the smallest amount owing and pay extra into that account until it is paid back. Then tackle the next smallest amount for extra repayments, until you work your way through all your debts. This is the best method because each time you pay off a debt, it will give you a psychological boost and motivate you to move on to the next one.

The other approach is the avalanche method. This one involves finding out which of your lines of credit has the highest interest rate and paying extra into that account until it is closed, and so on.

“This method makes the most mathematical sense because the higher the interest, the more money it is costing you each month, so it’s a good idea to get rid of it. But I find that it’s hard to calculate and it doesn’t give you the motivation that the snowball method offers. But if you think it will work for you, then go for it,” concludes Kunene.

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