The rise of over-indebtedness is a growing concern not only locally but also for individuals across the globe. Legal action and bad credit records due to non-payment can have serious consequences on people’s financial well-being.

In 2022, consumers in South Africa failed to honour a collective debt of R2.8 billion. Similarly, other countries have been struggling with debt issues. In the United States, household debt reached over $15 trillion in the third quarter of 2021, while the UK saw a total household debt of around £1.7 trillion in September 2021.

To avoid falling into the trap of spiralling debt, it’s essential to adopt a proactive approach and develop healthy financial habits.

Here are six tips to help you navigate the slippery slope of spiralling debt:

1. Master the art of budgeting

Creating a comprehensive budget is the foundation for responsible financial management. A well-structured budget will enable you to track your expenses, identify areas for potential savings, and allocate sufficient funds for unforeseen expenses and emergencies. By living within your means, you can avoid accumulating excessive debt and maintain control over your financial situation.

2. Build an emergency fund

Establishing an emergency fund can help cushion the blow of unexpected expenses, preventing the need to take on additional debt. Aim to save at least three to six months’ worth of your monthly salary, which will provide a safety net for life’s unexpected challenges.

3. Work with your financial adviser

When we work together, you can craft a financial plan to gain control over your finances. Our relationship can help you stay on track and make informed decisions about your financial future.

4. Downsize if necessary

If you find yourself caught in the cycle of debt, consider downsizing your house or car. Reducing your living expenses and committing to a more manageable lifestyle can help you regain control over your finances and work towards becoming debt-free.

5. Communicate with your creditors

It’s crucial to maintain open lines of communication with your creditors, especially if you’re struggling to meet your repayment obligations. Reach out to your creditors to discuss your financial difficulties and negotiate revised payment terms that are more manageable for your current situation.

6. Explore additional income streams

If your debt exceeds your income, it may be time to consider alternative sources of revenue. Starting a side hustle or pursuing freelance opportunities can supplement your primary income and help you pay off your debt more efficiently. Keep in mind that additional income streams require dedication and hard work, so be prepared to put in the effort in order to succeed.

By implementing these tips, you can take proactive steps to avoid legal action and the negative consequences of the rising red. Remember, the key to financial stability is cultivating responsible habits and staying committed to your long-term financial goals.