Updated 12.06.2021

10 Best Tips to Avoid Debt in Your Life

Debt is absolutely crippling. It’s a disease that eats into people’s futures, a heavy weight that makes it tough to move ahead in life.

Why should you avoid Debt:

  • corrodes future incomes; large portions of earnings go towards paying off past expenses, rather than present or future ones.
  • causes enormous amounts of stress, resulting in devastating health issues.
  • ruins relationships when stress and disagreements occur.
  • keeps people from moving forward in life and achieving goals and dreams.
  • forces buyers to pay out more than what the item originally cost.

And yet, the average South African is more likely to take out a loan than to put money into a savings account.

It’s up to us to break this destructive cycle. It won’t just improve our personal futures: as the average citizen becomes more financially savvy and grows their wealth, the future of the whole country will brighten.

Here’s how to avoid debt in life.

1. Learn to budget.

A monthly budget sheet takes all expenses into account and shows whether you can really afford that item.

  • A budget lets you take control of your finances.
  • It shows you where you spend your income.
  • It helps you reach financial goals.
  • It can even motivate you to work harder and earn more.
  • If you’re already paying off debt, it can help make that debt seem more manageable, because there will be a sum allocated to debt payment on your monthly budget.
  • For a budget to work, you must stick to it.

Find out how to write up a monthly budget sheet by reading online tutorials or taking a free online budgeting course. You can even download a free budgeting app or program to make the task easier.

2. Pay in cash wherever possible.

If you have cash for an item, it probably means that you can afford it. It’s far better to buy a less expensive item that you can pay for right away than to buy something expensive that causes stress and crippling financial problems.

Here’s how to pay in cash.

  • Open a separate savings account where you can pile up cash for purchasing items that you can’t buy straight away. People who are saving for something but keep that money in their main account often end up spending it on other things.
  • Always pay necessities like rent, water and electricity before transferring money to your savings account.
  • Don’t spend your savings on unrelated expenses.
  • Write your savings payment into your monthly budget to help you to save consistently.
  • Paying in cash doesn’t mean you need to carry loads of cash around with you (that would be unsafe). Use a cheque or debit card, and carry a little hard cash for times when you can’t use your card.

3. Avoid store cards.

Store cards are simply a shop’s way of getting people to buy something they actually can’t afford. They make temptation harder to avoid by giving buyers a way to still purchase that gleaming item they don’t have the money for…

…but you’re still forced to pay back later.

So hold a store card cutting party. Convince your friends to join you in destroying those damaging scraps of plastic. They’ll thank you later!

4. Only get a credit card once you’re debt-free and managing your finances well.

Credit cards are essential in some situations. If you want to take out a loan for a worthwhile cause (like buying a house or starting a business), you need a good credit rating to access low-interest rates, and using a credit card wisely can help you with that.

But using a credit card to assist poor financial choices won’t only destroy your credit rating: it will also land you neck-deep in debt.

  • If you’re currently struggling with debt, cut up that credit card, and only sign for a new one when you’re debt free and your spending habits are under control.
  • If you’re just starting out on your financial journey and growing your money management skills, delay obtaining a credit card until you’re financially savvy.

5. Buy a car you can afford.

Many South Africans go into debt to purchase a new car. Sadly, the weighty debt caused by car financing loans is actually unnecessary.

Secondhand cars are far cheaper than new cars, and a decent secondhand car will provide you with reliable transport for many years.

Here’s my tried and trusted way to buy a secondhand car in South Africa.

  1. Like with any car purchase, research brands and models to find out which are the most reliable, have the best resale value, have cheap and available parts, etc.
  2. Research the signs that point towards a secondhand car’s condition (mileage, upholstery condition, service history, etc.).
  3. Browse the online marketplace or visit your local secondhand dealership. Note that you can buy cars online directly from owners at ridiculously affordable prices, but will need to follow safety guidelines when making these purchases.
  4. Be patient and wait for your ideal buy to come up.
  5. If you are purchasing a car that you sourced online, research the safety precautions you need to follow for the transaction.
  6. Ask the owner for a recent roadworthy certificate, or take the car through roadworthy before purchase.
  7. Pay in cash! You’ll feel so good handing over that chunk of money and driving off with those new wheels that are entirely paid for.

It’s also easy to upgrade your car when you paid for it in cash. If you can afford a R25 000 car this year, and can keep it running for a couple of years while you save up another R40 000, then in two years you can sell your car for R15 000 and upgrade to a R55 000 car. You can stay out of debt, have your own transport and still purchase a better car every few years.

6. Have an emergency fund.

An emergency fund is a sum of money that helps you out when disaster strikes. If you have money laid by away, you won’t have to add sudden debt to your other worries in the event of an emergency. Currently, a good sum for an emergency fund is R15 000.

To build an emergency fund, add a line for emergency savings into your budget. Every month, pay whatever you can afford into a separate, dedicated savings account. Make sure the account is set to same-day withdrawal, and never dip into the fund for non-emergency related expenses. If you need to take money out, pay it back again when you can.

7. Don’t buy a house before you’re ready.

Home loans take many years to pay off. Before you take out a loan for buying a house, make sure you can tick these boxes.

  • I’m free of debt.
  • I have a stable income source.
  • I’m managing my finances and other payments well.
  • I can comfortably manage loan repayments alongside my other expenses.
  • My loan repayment isn’t more than 30% of my monthly income.
  • I’ve shopped around for a property that has excellent resale value.

8. Don’t throw everything on a new business.

Starting up a new enterprise is a challenging, complex and often risky undertaking. Here’s one excellent rule that helps keep entrepreneurs out of trouble if it all comes crashing down: never make yourself personally liable for your business’s debts. There are many types of loans you can take out to fund your growing business, but you should never use personal assets to secure your loan. Doing so could leave you both unemployed and drowning in debt if your new business goes under.

9. Focus at university, party later.

University is meant to set on young people on the road to success. However, this only happens when students play their part. University is expensive, and student loans can cause hardship and cripple financial progress when graduates struggle to pay them back.

Here’s how to handle that student loan:

  • Don’t spend the money on anything that’s not essential to school or day-to-day living.
  • Keep up with the interest payments.
  • If you can, choose to study a in field that pays well and has tons of practical applications.
  • Start looking for jobs in your field well before you graduate.
  • Ignore distractions and focus on your studies.

Ideally, students should have part-time jobs to either help support them so that they can take out smaller loans, or even to make a loan unnecessary. Having work commitments also helps to keep students realistic and on track while they study. Sadly, jobs are tough to come by in our current economic situation. At the same time, there is a growing online marketplace that can support students by allowing them to work part-time from their residency.

  • Look on popular freelancing sites for jobs that are in the field you are studying. This can provide both cash and extra experience.
  • Pick up a second skill, such as motion graphic animation or basic bookkeeping, via online tutorials and use these to earn money on freelancing platforms.
  • See if you qualify to teach English to students oversees by checking out the requirements on popular sites that hire English teachers.

Bursaries can give you a head start in life. In fact, in South Africa, many students actually qualify for free university education (find out more on the NSFAS website). And if you’d like to potentially save yourself a lot of hard work and sacrifice later, knuckle down and apply for a variety of bursaries now.

10. Sleep on major financial decisions.

Sometimes the key to staying out of debt is as simple as spending a little extra time on your decision-making process. Never make a big financial commitment without waiting at least twenty-four hours, and talking it over with someone you trust.

Finally, the secret of how to avoid debt is…

There really is a fool-proof way to stay out of debt… and it comes down to your mindset. I love this wise quote by financial guru Dave Ramsey: “Live like no one else today, so that you can live like no one else tomorrow.”

When your peers are buying houses, cars, furniture, and wardrobes full of name brand clothing, or when your best friend laughs at your beat up old car and Mom asks when you’re finally going to move out of that cramped apartment, remind yourself that everything you own is truly yours, because you’ve paid for it in full. You can enjoy daily pleasures and go to bed at night without the devastating cloud of debt hanging over your mind.

Later, you will probably find that many of your peers are stuck at the same spot they were in twenty years ago because debt prevented them from moving ahead. They may even have lost reputation and belongings. But you will be enjoying a comfortable, stable lifestyle that’s rooted in the excellent financial decisions you were wise enough to make.

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