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How to Pay Off Your Debts Quicker – Payday Loans in South Africa

July 03, 2019

A whopping 95% of South African residents spend more than what they earn. Considering the economic circumstances of this country where wages are low, and the prices of goods are high, being mired in debt in this country is not at all surprising. Expats and white South Africans tend to be more fortunate than the locals when it comes to mortgage applications as they are more financially secure than the rest of the population. However, mortgage financiers in this country are meticulous about one’s credit history, which is why you need to pay off your outstanding balances such as credit card debts to increase the chances of getting a more favourable loan. However, how can you do that?

  1. Analyze your financial situation to reduce your debt

Make a list of all your debts – car, student loans, payday loans, credit card expenses, and money you borrowed from friends or colleagues. How much do you need to pay each month for each type of debt? Multiply that monthly figure by 12 and add them all up to determine how much you will have to pay each year. Then, divide this number by your net annual income (monthly gross income minus estimated living expenses such as utility, rent, transportation, and food), then multiply the resulting number by 100. This is your debt-to-income ratio expressed in percentage. 

Should your ratio exceed 10%, that means you would need to act immediately to limit expenses, such as reducing your food and utility expenses and incurring no more new debt. The money you save from cutting your living expenses would go to paying off your debt quickly. 

  1. Identify your debt with the highest interest rates

Contrary to what it may seem, you don’t pay the debt with the lowest balance first. From your list of debts, identify which ones have the highest interest rates. You have to prioritize paying these liabilities as these debts become more difficult to pay the longer these remain unsettled. For example, if you have R 1,000 with a monthly interest of 5%, you would need to chalk off R 600 at the end of the year that debt remains completely unpaid, on top of your principal debt of R 1,000. Compare that with a larger debt of R 10,000 with only a monthly interest of 0.25%, and you will only pay R 300 for the accumulated annual interest.

While you have to prioritize these debts, that doesn’t mean you should hold off paying the others with lower interest. Prioritization means you will have to allocate more of your income to paying off these high-interest debts to have these settled as soon as possible, while still paying your other debts. After you have cleared one high-interest loan, pay off the next highest loan, and so on. Financial analysts call this method “debt avalanche” or “debt snowball” since you take on your total debt in a piecemeal manner.

  1. Negotiate with your creditors

If more than 30% of your income goes to debt payment, you will need to negotiate with your creditors for a lower interest or more time to pay off your balances. After all, if you die because you no longer eat to pay off your debts, paying these off becomes uncertain, unless you named a co-guarantor. However, if they refuse to change, you would have no choice but to cut down on your living expenses and avoiding more debt. If you want to get a hold of that dream house, you need to make sacrifices to pay all your loans faster.

If you’re looking for a payday loan in South Africa, get in touch with us today! We’re happy to help you with your situation.