Snow big deal to get out of debt trap

If you're trying to work your way out of debt without having to turn to a consolidation loan or undergo debt review, you'll know how difficult it can be to figure out a strategy and be disciplined enough to see it through.

It's always a great idea to employ a debt repayment strategy that will help you keep track of how far along you are on your journey.

You could use what is known as the "debt snowball" method, a concept pioneered by personal finance guru Dave Ramsey. The other is the "debt avalanche" method.

With the snowball method, you start paying off your debt from the smallest to the largest. It isn't necessarily the most financially sound way of doing things, but it's a great way of motivating you to get moving on that debt.

You may have three debts: a credit card on which you owe R5,000; a personal loan debt of R6,000; and a R3,500 clothing account.

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You focus on the smallest amount - the clothing account - and contribute a little extra towards it every month to finish paying it off.

When you're done with that, you turn your attention to the second-largest debt.

You can allocate the money that used to go towards paying the smallest debt and add it to the next debt in line. And so on until you've paid off all your debt.

The avalanche method is slightly more complicated. With this method, you tackle the debt on which the highest interest is charged, regardless of how much is owed.

For example, you may have credit card debt of R15,000 with a 20% interest rate; a personal loan for R25,000 with a 15% interest rate; and a clothing account for R5,000 with a 10% interest rate.

You'd focus on the credit card first, because in terms of interest charged it's your most expensive debt.

Once you've tackled that, you turn your attention to the 15% interest debt and continue until you're done.

It's important to note that, even with the debt avalanche method, the repayment period contributes to the cost.

The interest rate may be low, but if you're paying off your debt over a long time, it could end up being a large cost.

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Unless there's a hefty penalty for settling a debt early, it's always advisable to try to contribute more than the minimum monthly payment required where possible.

You can also use a combination of both methods to pay off your debt faster.

You may have four accounts: a credit card for R10,000 at 15% interest; a personal loan of R15,000 with an interest rate of 20%; a furniture account for R7,000 at a rate of 10%; and a R2,000 clothing account at a rate of 12%.

You can tackle the clothing account and personal loan simultaneously.

Once you've paid off the R2,000 debt, you could put R1,000 towards paying off the personal loan and the other R1,000 towards the furniture account.

Regardless of which method you choose, do not stop paying off all the other debts you have. Keeping up with your payments will ensure that your credit score is not affected by bad payment records.

Being consistent with your payments will ensure that you don't run into trouble if you ever buy a car or a house at a later stage.