Create wealth by staying out of debt

!cid_03F4CD1A-82F8-418B-B673-FF30FAE3E8F2@gateway_paceBy Wikus Olivier, Debt Management Expert at DebtSafe

According to the World Bank, South Africans were the biggest borrowers in 2014 worldwide!

In a survey done by DebtSafe earlier this year, the statistics show that 51% of the participating respondents were not able to meet their minimum debt repayment requirements in January. 13% of respondents indicated that they couldn’t make ANY payment. The consequences are enormous. They will have to make a double payment in the next month and catch up the arrears.

It is usually at this point where people realize they have a problem and any chances of becoming financially independent and accumulating wealth gets suppressed by the spiral of bad debt.


If wealth is defined as what you keep and not what you earn, then surely letting your hard earned money fly out the window to service debt cannot be conducive to accumulating wealth.


If you are not saving, you are making debt; therefore, try to stay out of debt in order to optimize your chances of becoming wealthy. Not being overburdened with debt means that you will have real cash to invest and your net worth will not be in the negative as most of your fellow citizens’ are. People who make use of debt to maintain a certain life style will never become truly wealthy.


How do people get to a stage where they have enough cash to actually start investing and accumulate wealth? If you are over-indebted, which 50% of South African credit active consumers are, how do you get rid of that debt burden to enable you to start investing?


The most important thing to remember is that debt will not disappear overnight. Getting out of debt will require a medium to long-term strategy, and discipline.


The first step would be to close your spending and lifestyle circle. In short, this means capping your life style. An example would be not to upgrade to the latest and greatest vehicle every two years. Pay off your car for a change and try to eliminate the monthly vehicle installments. Gradually you will start paying off all your debts, and experience what it is to be debt free. Make a commitment not to use credit to buy things, but rather plan and save for a cash purchase.


Implementing the above would also not simply be a result of good intentions. While debt is something many individuals cannot live without, careful planning, knowing exactly where your finances go each month and altering your spending habits to include only that which you need can assist you in living a debt free life.


An astonishing result from The Debtsafe Survey was that 55% of respondents don’t have a savings plan in place. As mentioned earlier, if you are not saving, you are making debt.


Abusing the power of your credit card is where most consumers fail and start their journey of spiraling debt. We conveniently swipe the credit card even though we have sufficient amounts of cash to pay for or debit it. Having a mindset of “doing it cash, or not at all” will keep you safe from bad debt slip-ups.


Borrowing from Peter to pay Paul is the most effective way to be consumed by debt. Consolidating your debt with yet another loan only shifts the debt from one place to another. According to the Debtsafe Survey almost 40% of the respondents spend more than 50% of their net take home salary on debt repayments.


Closing your spending circle and reducing the amount of debt repayments on a monthly basis will very quickly create enough positive cash flow which will enable you as consumer to invest in various things. The key lies in a mindset change and then discipline.


As a final thought, it is my opinion that true wealth lies in accumulating that which money cannot buy.