During the tough economic times South African consumers find themselves in, it is no surprise that debt is on the rise. IOL has reported that SARB has released it’s latest Quarterly Review data. According to the data, household debt levels to disposable income rose to 71.3% in the second quarter. This is up from 70.9% in the first quarter, as disposable income fell faster than household consumption expenditure.
How Much Is Too Much Debt?
The above stats refer to averages from household data. While some consumers may have no debt at all, others have way too much of it. Using data from the clients of Vantage Debt Management, a consumer typically needs around 65% of their monthly salary for living expenses, leaving them with 35% to service monthly debt repayments. If debt repayments creep above this threshold, it often results in a financial struggle.
Some debt is more expensive than others, so having lots of short-term debt is likely to leave you more out of pocket than secured debt like vehicles and homes. The interest rates and fees are higher for short-term, unsecured debts like credit cards, store cards and payday loans. It is often advised to pay off the most expensive debt first, but important to not fall behind on any debt repayments.
What Solutions Are Available To Those With Too Much Debt?
There a number of solutions for those struggling with debt, but here are the most common:
- Debt Management – A consultant will look at the full financial picture, including budget and credit report. Tips and advice on how to prioritise and budget better may be all that’s required. Consumers may be advised to negotiate directly with credit providers.
- Debt Consolidation Loan – A loan that is used to pay off smaller debts and be left with one, larger loan. Credit score must be high, payments must be up-to-date and affordability must be good.
- Debt Counselling – A formal debt solution where debt repayments are reduced by up to 60%. A new payment plan is calculated whereby interest rates are reduced and payments terms are extended. This solution is for consumers who are over-indebted, have low credit scores and have missed debt repayments.
- Sequestration – The most sever debt solution for consumers which has long lasting effects. Consumers have to sell their assets and use the remains to pay off creditors.
In order to see which solution is best or what you qualify for, speak to a Vantage Debt Management consultant. We perform a free assessment looking at your credit report, budget and living situation.