Simple Rules To Get You Out of Financial Morass

AT SOME time in our lives we may find ourselves receiving that dreaded call from a debt collector. You get that sinking feeling and your heart starts racing. If this has happened to you, remember you are not alone. South Africans have a lot of debt and we don’t seem to be the best at paying it back – according to the National Credit Regulator. Statistics show that only half of the 19 million credit active consumers in South Africa are in good standing. Add to that the South African debt to disposable income ratio of more than 76% (meaning that more than 76% of our take home earnings is spent on debt), we don’t seem to be getting it right. So where do you fit into this debt picture and what relief is there?

There are two extremes, the first is a mere nonpayment of even a single debt, and the other extreme is total over indebtedness when there is no means of meeting your debt obligations.There will be signs that something is going wrong with your finances: either your income has reduced or the cost of your expenses has increased. Increases in the petrol price, food and interest rates can quickly change your ability to pay your accounts as these increases eat away at your disposable income. If you have no way of supplementing your income, it’s time to take action. Don’t ignore your debt obligations because they will not go away and they can very quickly spiral and compound beyond your control. If you miss paying a low value account or two every other month, you need to start looking at your expenses and see where you can cut back. It may be tough, so create a budget and see where cutting back on non essential spending can put you back on track. If you find yourself missing higher value debts like home or car repayments, serious attention is needed.

You are considered to have defaulted on a payment if your account is 20 days in arrears. So before that happens CALL the credit provider. It’s important to remember that banks are not in the business of repossessing cars and homes unless they have to and most will be open to restructuring your debt agreements with a payment plan you can afford, if they are approached early enough. Paying debt off with other debt is not a great idea, short term loans come with high interest rates and are by no means a long term solution as you are just adding to your debt pot. A debt consolidation loan may be an option and will take all your debts and consolidate them into one lower monthly payment over a fixed term. Debt consolidation loans should however only be considered if you have a steady income and if the reduced monthly payments will actually improve your financial position. What if you have missed numerous payments and every phone call is someone looking for money? Then you may need debt counselling. Credit providers must notify you in writing of the status of your account, they must also advise you of your right to approach a debt counsellor or challenge the agreement in a consumer court or with the Credit Ombudsman. If after 10 days you have not exercised this right the credit provider can now enforce the debt. Debt counselling will take you out of the credit loop and the only type of credit you can apply for is a consolidation loan. If you do not meet the agreed repayment plan you no longer be protected and review and the credit providers can now take legal action. Debt is not bad, well managed debt can open doors and improves lifestyles. Too much debt puts you at risk when economic factors change. Pay down debts and know that for every debt situation there is a solution. Next week we talk about setting financial goals.

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