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29 March 2022

By Sebastien Alexanderson is CEO of National Debt Advisors. First appeared in Moneyweb

Global Money Week (March 21 to 27) is an annual global awareness campaign highlighting the importance of ensuring young people are financially aware. It should be a stark reminder for people to avoid falling into a debt trap.

When life throws financial curve balls, we often turn to credit for emergency maneuvering, often with the best intentions of getting out of the dip as soon as we can. However, human beings are creatures of habit, which means we are victims of our own bad habits and often find it very hard to change.

The global campaign’s theme this year is ‘Build your future, be smart about money’. It’s scary to think that as an industry, over 75% of the people we help become debt free start borrowing again within six months of leaving the programme. Our fears of course are that some of these customers will fall back into the trap of being over indebted and have borrowed their maximum allowance within a year of being debt free.

The business of managing one’s debt can become tricky as we navigate the rollercoaster of life. Nobody wakes up in the morning and wants to admit to themselves that they are struggling financially. Without any formal training or experience within the financial industry sector, most of us never think about budgeting the true cost of purchasing a house or a TV or vehicle without a deposit or on very expensive interest rates. For example, if you purchase your property on 100% loan from the bank, you will pay back seven times the purchase price over a 20-year repayment plan.

Over time, many people grow their careers and their salaries and with that they also grow their spending habits. Many people find themselves having used up all their savings and available credit and are living paycheque to paycheque paying the minimum debt repayments with no end in sight.

Debt counsellors are there to help change those situations and negotiate better repayment plans to help people return to a normal standard of living. During this process people are encouraged to learn how to save towards their goals and learn to live without credit – the goal is to become debt free in five years or less without having to borrow any more money. Borrowing your way out of debt can often set you back years if not managed correctly.

The trick for staying debt free is to learn to live within your means if possible.

Here are some top tips on how to do this:

  • Don’t make impulse purchases but rather start learning to set goals, especially savings goals. For example, if you are buying a big-ticket item like a TV or a fridge, make sure you have at least 25% for the deposit .
  • Creating passive income (multiple streams of income like having a weekend job as well as a job during the week) is a guaranteed way to keep you occupied from spending money and help you make more money to achieve your savings goals.
  • Knowledge is power. Hoping things will change on their own is not realistic. Rather speak to a certified debt counsellor.
  • If you find yourself in increasing debt, it’s important to know that you are not alone. You have options and there are professionals who can help you. Living without debt is a mindset that we teach while on debt review. Make goals, set targets and sleep better at night knowing that you are debt free when and where possible.

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