Everyone knows that they shouldn’t take out too much debt, but this is often overshadowed by unforeseen circumstances or bad lifestyle choices. In South Africa, debt is easily available and unfortunately basic financial literacy is lacking. This combo leads many consumers into a debt trap which is very difficult to escape. Vantage Debt Management has picked up a few signals which indicate that you may be in trouble. Debt is a major problem in South Africa with more than 10 million credit-active consumers being behind on debt payments. Here are signs as well as what can be done to prevent falling into a debt trap:
You Can’t Make It Through The Month Without Using More Debt
This is the classic indicator that you may be over-indebted. What this means is that your income is not sufficient to cover your debts and living expenses in a month. This situation forces consumers to use a credit card or loan once their money runs out. An example of this is someone who gets paid on the 25th of each month but has used up all income by the 20th. They will use a credit card or payday loan to cover costs until their next pay date.
You Are Using Debt To Pay Off Other Debts
Using debts to pay of other debts is a dangerous game. This type of juggling causes lots of stress and puts pressure on a consumer, especially towards month end when debit orders start running. Each new loan or use of a credit card increasing the total amount that a consumer owes. As your debt climbs, your interest and fees also climb. This will make your monthly expense even higher, not reduce them. In this desperate situation, it is often more expensive debt that is used to pay off other debts. Consumers who find themselves doing this will use any loan or form of credit they can get their hands on.
Debt Is Becoming More And More Appealing
As the month draws to an end and they start running out of money, struggling consumers will make use of all options available to them. Usually it starts with a personal loan and the use of bank credit cards. Consumers will then approach second tier credit providers to get loans. Once they start shutting their doors consumers will approach payday lenders and even loan sharks. Taking out debts becomes a monthly habit that is almost impossible to break.
How Can The Debt Trap Be Avoided?
The best way to prevent getting stuck in a pool of debt is early detection. If you find yourself struggling to make it through the month it is best to find some help as soon as possible. There are many experts that can give you advice and offer debt solutions that can ease the burden. Speaking to your financial advisor or debt counsellor is a great start.
If you are spending the same amount as you earn each month you are at risk. Just one increase in your cost of living could tip you over the edge. A debt counsellor will look at your entire debt profile. They will then see if there is a way to consolidate your instalments. The advantage of this is that you will only have one debt repayment each and that it will be affordable.
Debt counselling is the best solution for consumers who are already over-indebted. The process will reduce your monthly instalments so that you are left with enough money for all your living expenses.