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Budgeting 101
Increase your monthly debt repayment by looking for ways to put more
money towards your debt. The more money you put toward your debt,
the faster you can pay your debt off.
We help you to create a monthly budget to better manage your money
and help you figure out how to cut out some expenses and use that
money for your debt. You may also be able to come up with the money
for debt by selling things from your home or generating income
from a hobby.
If you are only paying the minimum on your debts, it will take the
longest time to get out of debt. By the time you finally pay off your
balance with minimum payments, you will probably have paid double
or even triple what you were originally charged.
Once we have identified the extra money that you can pay towards
your debt – it is important to identify the best way to settle the existing
debt. We will run all the numbers and show the most effective way to
settle your debt. This can either be the Debt avalanche strategy or the
Debt snowball strategy.
Debt Avalanche
VS
Debt Snowball
The Snowball and Avalanche debt strategies are two ways of
addressing debt, but which is the best for you?
The Debt Avalanche
With this strategy, we focus on getting rid of the debt with the highest
interest rate first, regardless of balance. This should save you money
over the long-term because you are reducing your interest charge.
We automatically rank your debt from highest interest rate to lowest
interest rate.
The loan balances are then repaid in that order, taking out the loan
with the highest interest rate first, then the second highest, and so on.
Once you repay that first loan, you take the amount of money you were
applying towards it and combine it with the payment you were making
on the loan with the second-lowest balance.
Example - Personal loans 27.5% p.a, Credit card 20% p.a and
Vehicle loan 12.5% p.a
The Debt Snowball
With this strategy, we focus on getting rid of the debt with the smallest
outstanding balance first, regardless of the interest rate.
We automatically rank your debt from smallest balance to highest
balance. With the debt snowball, you put as much money as you can
towards your debt with the lowest balance first, while still maintaining
minimum payments on your other balances. Once you repay that first
debt, you take the amount of money you were applying towards and
combine it with the payment you were making on the loan with the
second-lowest balance.
Your payment on this second-lowest balance loan “snowballs,” because
the payment is the combination of what you paid toward the first loan
and the minimum payment you were already paying on the second.
You will continue to snowball your payments and knock out your debts
one by one until you are debt-free.
Example - if you have three personal loans and owe R1,000,
R5,000, and R20,000 respectively, that’s exactly the order we list
them out in.
