Six steps to debt freedom

About 25,5m SA consumers are in some kind of debt - and according to the Reserve Bank, they owe the banks and other credit providers a total of around R1,7-trillion.

The good news is that about 52% of these borrowers are currently managing to keep up with their car, home, card and loan instalments as well as other account payments such as those for cell phones, clothes, furniture, rent or utilities.

But on the other hand, the National Credit Regulator reports that more than 12m consumers are currently in default on a total of about 19,25m accounts - and for these borrowers, debt is often a terrible burden that has them desperately juggling payments every month and cringing every time the phone rings.

However, dodging creditors is obviously not a real solution, and borrowers who find themselves in this situation need a proper plan of action to get out of it. Here are the six steps most recommended by expert debt advisors:

• Stop borrowing. If you are already in so much debt that you can't make all the repayments and cover your basic needs every month, the answer is not pay-day loans or increased use of your credit card. What you need to do first is put yourself on a strict cash-only budget and then consider how to reduce every single daily, weekly and monthly expense. Take public transport instead of driving, don't eat out, restrict your cellphone usage, rent a cheaper home and pay only for those things you really need (like food) out of a set cash allocation per week.
• Ask all your creditors for help. Most creditors would far rather work with you and find ways to help you pay off your debt than have to go through the very lengthy and costly legal process of getting a debt judgment and then trying to attach your belongings to recover their money. In fact many have specific procedures in place to assist consumers who are having a tough time - like spreading your repayments over a longer period or perhaps reducing the interest payable. But this only works if you are honest about your situation and ask for their help as soon as you realise you are going to have a problem paying. They are obviously going to be much less sympathetic about things like a job loss or even a medical emergency if you are already several months in arrears and have been dodging their calls.
• Get help from your bank to sell your home. If you are a home owner and behind on your bond repayments, you should consider selling long before the bank starts proceedings to repossess the property. All the major banks have special programmes in place to assist distressed sellers to get their homes sold quickly at the highest possible price so that they can pay off the bond and walk away without damage to their credit records. 
• Stay motivated. It can be very hard to stick to your debt repayment resolution when you're counting every cent and living very economically, so you need to keep imagining what your life will be like and what you will be able to do when you are debt-free. You might be able to further your education, for example, and get a better job. You might dream of saving for a home of your own, or of being able to start your own business. It doesn't matter what, as long as it gives you a reason to keep going and setting yourself free of debt.   
• Climb down the debt ladder. If your extreme budget has managed to free up a few extra rands to put towards debt reduction, your best option is to apply that money to whichever of your accounts charges the highest interest rate and get that balance paid off as fast as possible, while still paying the minimum instalments on your other accounts. When that is done, you take whatever you were paying per month on that account, plus your extra rands, and apply the total to the account with the next-highest interest rate, and so on.  
• Consider debt counselling as a last resort. If you really have tried everything possible and still can't make ends meet every month without going into more debt, it may be time to see a professional debt counsellor who is registered with the National Credit Regulator (http://www.ncr.org.za/). Debt counsellors are empowered to negotiate a restructured payment plan with your creditors and obtain a court order confirming this plan. You will be protected from further legal action by your creditors as long as you pay according to the new plan. However, you will be listed at the credit bureax as being under debt review and will not be able to obtain any new credit until you have paid off all the old debt. You will also be charged for the debt counsellors services, as per a set schedule of fees. (See http://ndma.org.za/debt-counselling-how-it-works/).