After all, we are more heavily indebted than ever, and the impact of the Covid-19 pandemic has resulted in increased debt levels for-eight out of 10 ten people -with some even relying on their credit facilities to purchase things essentials such as food and clothes.

Minimising our debt could be the first step to preventing us from falling into the red. However, understanding how interest rates, debt consolidation and defaults impact how we handle debt can help us navigate our way to reducing debt without the stress. 

Understanding how these three major factors affect our debt and financial reality, can help us select the right type  of credit so that we can continue our repayment commitments even during tough economic times:

1. How the interest rate affects debt

You may be wondering how the ever-fluctuating interest rate will affect your debt repayments. But, remember that not all debts are created equal, which means the interest rate could affect debt differently based on whether your repayments are linked to a fixed or prime interest rate.

A change in the interest rate can impact your repayments and affect your budget however, with a fixed interest rate you should be able to maintain your repayments at a set amount. Therefore, checking the conditions that come with credit or a loan is vital to financial planning, especially when it comes to repayments.

2. How consolidation affects debt

Should you find yourself over-indebted and battling to make repayments, then consolidating your debt could be a solution. Debt consolidation means taking out one loan, which tends to come with a lower interest rate, to service any outstanding debt you have with various creditors. It includes all the different debts you have and brings it under one monthly payment with one interest rate - to make payments more manageable. Still, there is no one-size-fits-all solution and you are likely to have to undergo debt counselling before taking on debt consolidation to find the right solution that works for you.

3. How defaults affect debt

There are many reasons why someone may start to default on debt repayments, and this is likely to negatively affect your debt scenario. Defaulting on your payments means delaying payments and this approach can snowball into an unmanageable debt reality.

Avoiding contact and conversations with creditors when you find yourself unable to service your debt, can also create more problems. Not only will a poor debt repayment record impact your credit score, but it can also lead to legal action which can affect your future borrowing ability. It is imperative to pay off debt as soon as you can. If you can pay off more in certain months, then do so, to help reduce the amount you owe and save on interest rates and fees that come with the overall cost of having credit.