Having complete control over your finances isn’t a trait all of us are born with and managing your money comes from self-discipline and setting down positive habits from the day you start to earn an income. Saving may seem easy in theory but it requires consistent practice and monitoring.
For most people, this does not come naturally which means they exhaust their disposable income and begin creating a deficit or worse live on borrowed money and landing them in debt.
Being in debt is an uncomfortable topic that they don’t want to talk about. Debt repayment can be a long and tiresome process and there is more to it than just focusing on the goal of becoming debt free. Many South Africans and consumers from around the world struggle every day to exit the cycle of debt but remain in it longer than they should.
We all know debt is bad, so why do people remain in debt for so long? Here are 10 reasons why people are struggling to pay off debt.
1. Lacking money management skills
Lacking money management skills may be the main reason that people have trouble with sticking to their debt repayment plan. Knowing basics like how a checking account works, how a retirement account works or how investments work, will help you make responsible and informed decisions about your money. You may want to consider following a budget plan.
The key to successful debt repayment is being able to budget correctly. This is when you understand how much money is coming in and how much is going out – meaning how much you earn vs. how much you spend.
2. Inappropriate use of credit cards
The inappropriate use of credit cards may count as a reason why people can’t meet their financial goals and pay off their debt efficiently. An easy way to keep an overview of your expenses is to use cash instead of credit.
People also tend to make the big mistake of making only the required minimum payment when paying off their debt. This results in owing a lot more money due to interest over time, which translates to more money spent over a longer period of time. When making payments on your credit card you should attempt to satisfy some of the principal balance, not just covering the monthly interest.
3. Can’t say no to their kids
Parents in particular sometimes find themselves struggling to pay off their debt because it’s hard for them to say no to their kids. It is totally understandable that you don’t want your children to sacrifice anything just because you are in debt. Most of the time kids aren’t aware of their parents’ financial situation, which makes it hard for them to understand certain decisions.
Saying “yes” to whatever your kid wants will almost certainly lead you into even more debt. If you feel your children are mature enough teaching them financial literacy will go a long way both in the short term as well as their future.
Coupled with that, learning to say “no” and setting limits is essential both to teach children and to stay on course with your own budget.
If your child is approaching or attending school you may want to check out these tips – How South African Parents Can Prepare For School Fees
4. Not having an emergency fund
Last but not least, not having an emergency fund is one of the reasons why people struggle with debt repayment. Borrowing money for unforeseen events is counterproductive when paying off existing debt. Emergencies can happen anytime. This can range from medical emergencies to home or car repairs or any other unexpected bigger expense.
It will hit you especially hard if you are in the process of paying off your debt. In case you don’t have an emergency fund you might need to direct the money that you would usually use to pay off your debt towards paying for the emergency. It is very easy to start contributing to a fund and you can start by adding a little money each month to always stay prepared.
5. You’ll have to sacrifice things you want now
Paying off debt requires constant sacrifice. It’s hard to do that since we’re continually flooded with advertisements for goods and services we don’t really need. As long as you’re paying off debt – and even when you’re finished – you have to say “no” to things – vacation, electronics, jewellery, etc. – that will hinder your debt repayment progress.
6. High finance charges take much of your payment
The higher your interest rates, the longer it will take you to pay off because much of your monthly payment goes toward paying expensive finance charges. You’ll have to increase your monthly payment or talk your creditor into lowering your interest rate if you want to make real progress paying off that credit card balance.
7. Everyone else is spending money to their heart’s content
Debt repayment can be extremely difficult when you’re making huge sacrifices to get rid of the debt while everyone around you buys, borrows, and spends whatever they want. That spark of jealousy might tempt you to reconsider paying off your debt, especially as you think back on the carefree life you lived when you also spent money at your leisure.
The joy of buying things is short-lived, especially as your borrowing power runs out and you’re forced to repay all the money you’ve borrowed. Occasional indulgences are ok. Just keep your purchases small and infrequent.
8. Your spouse/partner/family may not support your debt repayment
If you’re married, in a serious relationship, or have kids, you need those people to support your decision to get out of debt. Not only do you need their encouragement, you also need them to understand your financial decisions. Your family will also have to adjust to lifestyle changes.
For example, if you decide to cut out cable television, the family will have to find other ways to entertain themselves.
9. Unexpected expenses will arise
Though you may do what you can to safeguard yourself from unexpected expenses, you’ll sometimes have to deal with something you didn’t plan for. That’s why it’s important to have an emergency fund that you can withdraw from when unexpected expenses arise.
An emergency fund softens the blow from unexpected expenses and keeps you from having to borrow money. You’ll have to rebuild your emergency fund, possibly from your debt repayment funds, so you’ll have money available the next time something unexpected happens.
10. It can take a long time
Paying off your debt can take several years depending on the amount of debt you have and the amount you’re able to put toward it every month. It will take even longer if you add more debt or you pay just the minimum. You might get discouraged after months or years of paying debt with minimal progress.
Go into debt repayment with an idea of how long it will take to pay off your debt. Every few months, use a debt calculator to figure out how much longer you’ll pay on your debt with your current monthly payment. That checkup will give you an idea of where you stand and keep you from feeling like you’re wandering around in a debt repayment wilderness.
Bonus tip: Seek professional advice
Needing financial help is nothing to be embarrassed about but many people feel ashamed of their financial situation when bills are pilling up. Not everyone has the know-how and the self-control to change their financial wellbeing and this is where seeking out professional help is a must.
At ezDebt, we have trained consultants who have dealt with all sorts of debt situations from across Sotouh Africa and have used debt review to help countless consumers young and old. The debt review process is designed essentially to help consumers, manage, reduce and eventually settle all their debt and move on to a debt-free status.
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