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5 ways to avoid unmanageable debt

Debt can overtake your entire budget. We find out what a debt cycle is, and we consider five ways in which you can steer clear of unmanageable debt.

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Get debt help

Through debt counselling and debt consolidation, you can reduce your overall monthly instalments.

Sort out my debt

Credit can be an incredibly useful tool. It allows you immediate access to goods and services that you can slowly repay over time. However, credit can also be mismanaged, leaving you drowning in debt.

A 2022 report by McKinsey & Company shows that South Africans are worried about their personal finances. Of the 1,025 respondents, 87% described their financial situation as “stretched”. From this segment, 13% said they were in crisis and 32% said they find it hard to make ends meet.

This means that a large number of South Africans are at risk of falling into a debt cycle. This is when you continuously take out new loans so that you can meet your monthly expenses, including your current credit agreements.

Over time, you will miss your monthly instalments but still be forced to take out more credit to keep yourself from crashing to rock bottom.

Your credit score will also decline significantly when you're in a debt cycle. You need to make sure you check your credit score and report regularly. Access this through ClearScore.

The best way to sidestep a debt cycle is to ensure your debt remains under control. We have a look at ways in which you can achieve this.

1. Set a budget that prioritizes your lenders

Nowadays, budgets aren’t as mundane as they once were, with spreadsheets and long equations. You can use unique challenges and entertaining games to drive you over the finish line. For inspiration, have a look at these five budgeting strategies that make money management fun.

When you set your budget, your first priority should always be to your lenders and, if you can afford it, you should always try to pay slightly more than you owe each month.

For example, if your instalment is R100, rather pay R120. Your lender will note the extra R20 and the amount you owe will show a negative figure: -R20. Within five months, this will increase to -R100 and, if you miss your R100 instalment, it will withdraw the amount from this “reserve”.

2. Don’t commit to credit you can’t afford

When your lender makes you an offer based on your credit application, you should sit down with your budget and work out whether you have the money available to pay the instalments each month. If it’s going to put a strain on your finances, it’s best to avoid it altogether.

When weighing up the pros and cons, you should also be careful not to rely on a raise you haven’t received yet. Perhaps your company loses a big client and they choose to reduce your upcoming increase. If you take out credit that depends on a future increase, you may end up in a debt cycle.

3. Don’t juggle too many credit-bearing accounts

When you take out a small amount of credit, it may appear to be manageable. Perhaps you buy clothes for R300 and see that your monthly instalment is only R40 – that’s not too bad, right?

But let’s say you then also buy a lawnmower on a different account and a fridge on another account. Slowly, but surely, your monthly total instalments may grow to several thousands of rands and, what was once a little bit of credit, will start to crowd your budget.

As a rule of thumb, if you can’t easily recite the ballpark interest rate, balance, and instalment on each of your credit-bearing accounts, you may be juggling too many of them.

Through ClearScore, you can apply for debt counselling. A qualified counsellor will renegotiate your credit agreements, and combine your debts into a single instalment.

4. Never take out a payday loan

When you hear the term “payday loan”, a warning siren should go off in your head. These loans are easily available and they are often offered by lenders who don’t abide by the National Credit Act.

In a study, PayCurve found that nearly 80% of South Africans rely on some kind of high-interest loan, such as payday loans, to make it through the month. As a result, 43% of them spend over a fifth of their salaries on paying off this debt.

If you’re struggling to keep up with your monthly instalments, you should rather reach out to a debt counsellor. They will contract your creditors and renegotiate the terms of your credit agreements.

You can consolidate your debt with one of ClearScore's partners. This will simplify your outstanding debt and reduce your overall monthly instalments.

5. Have an emergency fund to fall back on

If you’re unable to afford the financial burden of unexpected events, you may be forced to rely on large sums of debt. A simple fender bender may set you back R10,000 and urgent home renovations could cost you another R12,000.

Emergencies happen and you need to make sure you’re financially prepared for them. This is why you need to save three months’ salary in an easy-to-access account. You can then use this for unplanned expenses and stay away from unnecessary debt.

It’s entirely possible to avoid unmanageable debt if you’re prepared. By following the above advice, you will be able to handle unexpected expenses without heavily relying on debt, and you will have the know-how to refuse credit that you cannot afford.


Isabelle is a freelance finance writer and journalist in Cape Town. She helps make managing your personal finances calm, clear and easy to understand.