Save your way out of debt

We’re used to advice that tells us that if we’re in debt we ought to pay it off as soon as possible. We’re advised to get out of debt before we put any other financial plans in place.

This is practical advice, to be sure. It’s unpleasant having debt hanging over you and, more importantly, if you’re paying a whack of interest you are almost certainly going to hang around in debt-land until you’ve paid that off.

But there’s another, perhaps counter-intuitive, way of viewing this dilemma. Yes, it helps to plan your way out of debt and it helps to have a strategy for paying it off (say, paying off the smaller debts first so you have fewer debts; or paying off the big debts first so they’re behind you). But at the same time, one of the most important strategies you can adopt for getting and staying out of debt is saving.

I had a client who was in debt and her business account was in overdraft. My first piece of advice to her was to borrow from her overdraft to set up a saving. At first, she thought I was crazy. “I don’t want more debt!” she said. However, I was able to show her that, by saving just a little each month, while servicing her debt, she was actually taking control of her financial future.

Often, we are so focused on paying off debt that it seems we will never get out of it. So we wallow in it. Another client of mine said to me, “I’m in so much debt already — what’s another pair of shoes?”

The truth is, debt won’t go away until you actually start saving. So my advice is simply this: pay your debts, but balance this with saving. Even if you are under debt review, you still have a little money to live on each month. Save some of that, even if it’s just R100 a month. The psychology of starting to save is powerful, because saving is a way of honouring yourself. “I am worthy of accumulating money” is a powerful mantra.

To return to my client in overdraft: she borrowed the money and started saving R500 a month. She serviced her debts at the same time and was soon in a position to save R1 000 a month. In time, she paid off her overdraft and saved up enough to buy a car.

Of course, this strategy may not work for everyone — but the key for anyone wishing to get out of debt is discipline. Although “discipline”
may seem like a joyless word, remember that if you set appropriate goals, this discipline will reap some really feel-good rewards.

Refuse to feel overwhelmed
When we are in debt, we tend to feel overwhelmed. We think we will “never” get out of debt and we struggle with a heavy feeling of
entrapment. This is far from the feeling of financial well-being we’d all like to experience.

It’s important, at this stage, to view debt as a means to an end. Reframe your concept of debt. Look at it as an amount paid for services and products you’ve already received and are enjoying.

Appreciate that you have bought something that must now be paid for. This is not so bad — after all, paying off a house takes time and you don’t feel overwhelmed when you pay your bond, do you? Invariably, you feel pleased that you are slowly acquiring your property and will one day own it outright.

At the same time, while servicing this debt, you are quite within your rights to save for the future and for retirement. It’s also vital to create an emergency fund, which may eventually get and keep you out of the debt cycle. Just one unanticipated expense can bring your house of
cards down — dental work, a car repair, your car licence renewal or even a bigger than usual phone bill — and if you don’t have savings you’ll plunge straight back into debt. So it’s crucial to have the breathing space to create a savings fund, however small. The trick is not to touch it, no matter how tempting that may be. Consider it “out of bounds” and rather go without luxuries, or budget so that you can enjoy one small treat but keep your savings on track. In this way, you’re taking some of your power back. Yes, you owe money; but you are also paying yourself.

If in doubt, start with just 1%
Perhaps the thought of saving your way out of debt seems too frightening. If this is the case, start small and work your way up. Save 1% of your income. Then if you’re able to do so, increase this by a percentage the following month.

Whatever your goal, view this saving as something that will “heal” you. Debt need not be painful and humiliating. If you experience it in that way, you will certainly lose your self-esteem and perhaps resign yourself to living from one shaky month to the next, occasionally taking on more debt by spending to make yourself feel better. The antidote is the belief you, too, can save.

Saving is not something that other “smarter” people know how to do. Saving is within everyone’s reach and power. Believe you can — start small and when you see results you’ll be encouraged to build on this.

I like to focus on two kinds of savings. A primary saving — that’s, say, 1% or 2% of one’s income squirrelled away each month; and a secondary saving — say, money you can save by being a smart shopper, looking for good deals, comparing prices, trimming the fat off your budget.

Budgeting is fun. A client of mine was in despair because she had only R400 left with 10 days to go before the end of the month. I advised her to break this down, very logically, into R40 a day and challenge herself to make it work. She did — and she reported having enjoyed the experience. By breaking debts down into manageable portions, using the same principle, it’s actually perfectly possible to repay debt, eat and even save a little. Provided your budget is a workable, realistic one, you may even have some fun proving you can prevail and even, at some point, thrive.