Debt is an almost inevitable part of life. Home loans and car finance can improve your quality of life, but it always makes sense to pay off debt as quickly as possible.

Clever repayment tactics can help you pay off debt faster. In this article, we cover six strategies that could work for you:

• The snowball method
• Paying more on long-term debt
• Making payments every two weeks
• Debt consolidation
• Selling assets to settle debt
• Filing for bankruptcy in South Africa

1. The snowball method

In general, people tend to put most of their money towards the debt with the highest interest rate. This makes sense because interest can wipe out progress made by repayment.

The snowball method focuses on paying off your smallest debt first, irrespective of the interest rate. You pay as much as possible each month to your smallest debt, so you can pay it off quickly.

When it’s paid off, you have more money for other debts. It also gives a sense of progress and accomplishment. From there, you move on to the next smallest debt.

2. Pay more on long-term debt

This may seem like an obvious approach, but it can be a powerful strategy for reducing longer term debt, such as a home loan or car finance. Even a small amount can make a huge difference over time.

As an example, let’s say you have a 20-year home loan of R1 million, and the interest rate is 8.75%. Your repayment on this amount would be about R8,800 per month.

If you add just R200 to your monthly repayment and make it R9,000, you reduce your repayment period by a full year and save roughly R75,000.

The more you add, even R100 or R200, the shorter the home loan term will be, and more you save on interest over this period.

Paying extra on any debt before the monthly interest has been calculated and added reduces the total debt amount. This reduces the interest for the month, which is calculated as a percentage of this total.

3. Make bi-weekly payments

Making payments every two weeks doesn’t mean making the full repayment bi-weekly. This is unviable for most people.

It means splitting your usual monthly payment in two and paying that amount every two weeks.

Because there aren’t exactly four weeks in every month, this is the same as making 13 monthly payments per year.

For example, if you normally pay R1,000 a month, you pay R12,000 a year.

If you pay half that amount, R500, every two weeks, you pay R13,000 a year. There are 52 weeks in the year, so you would be making 26 payments instead of 24.

4. Debt consolidation: when it is and isn’t helpful

Debt consolidation takes all your debt from different lenders and combines it into one debt with one payment per month.

This is sometimes, but not always, done by a third-party debt consolidation service. You can also do it yourself using a personal loan or a credit card.

Debt consolidation is a good idea when you have many debts with high interest and the repayments each month add up to more than a single debt consolidation payment.

If you qualify for a lower interest consolidation loan or a credit card with a zero-interest repayment period, this can significantly reduce your monthly repayments.

However, this approach might not work for very large amounts of debt. Consolidation doesn’t remove your debt, it just makes the repayments more manageable and reduces the overall interest paid.

5. Selling assets to settle debt

Selling an asset is a good way to pay off a debt instantly. If you sell something valuable enough, you can settle a loan and be debt free.

Of course, this means selling something that might be essential, such as a car, or sentimental, such as jewellery.

Selling an asset to pay off crippling debt could be considered a good investment, but it should only be considered as a last resort. Once sold, the asset is seldom recoverable. It’s always a good idea to keep your investment portfolio intact.

6. Filing for bankruptcy in South Africa

If you have a huge amount of debt that you know you will not be able to repay, you can file for bankruptcy. To do so, you need to prove that you are insolvent.

To declare bankruptcy, your liabilities must far exceed your income and assets, making it impossible to repay the debt.

You will need to go to a lawyer to have this confirmed. If a lawyer confirms you qualify for voluntary sequestration, you will be advised on the process, requirements and risks.

The lawyer will also draft and submit your application to the High Court of South Africa. The court will appoint a trustee to oversee the selling of any assets and the distribution of benefits to creditors (the lenders you owe money to).

There will likely still be instalments to pay, and your sequestration will be listed on your credit record. Once your debt is repaid, you can apply for rehabilitation. The entire process can take many years.

What Pawn My Car offers

Another strategy for paying off debt faster is getting an asset-backed loan.

Pawn My Car offers short-term loans against paid-off vehicles. Our asset loans use the vehicle as collateral, so they’re available to anyone with a paid-off car regardless of credit score or employment status.

Once you pay off the loan and interest, the car is returned to you.

We’re a registered credit provider, and our interest rates adhere to NCR regulations.

Call us on 0861 112 866 or WhatsApp us for more information. You can also apply online now.

Complete an application now