2020 has been a strange year indeed. One thing that tends to cause people large amounts of stress is unpredictability. Covid-19 and all that came with i caused major panic and uncertainty in out lives this year. Besides the emotional stress, financial pressure has been a nasty result. Mass retrenchments and salary cuts have put many consumers in dire positions.
The New Year Is Upon Us
2021 is just two months away. Due to the decreasing lockdown levels in South Africa, things seem to be getting back to normal. Economic activity seems to be picking up and people are returning back to work. However, the lockdown and virus has left a few financial scars on the people of South Africa.
Leading up to 2020, the banks were already seeing increases in their bad debt books. The coronavirus pandemic has further increased the risk of default for South Africans.
Many More South Africans Are Over-Indebted
In times of financial stress, consumers often opt for unsecured debt as a means to make it through the month. Using debt to survive in a month becomes a problem when one cannot afford the installments anymore.
A debt-cycle is when a consumer has to borrow or use a credit card or overdraft every month to make it through to the next pay day. The cost of using more debt is often overlooked. As soon as a consumers salary is not enough to cover both debt repayments and living expenses, they are deemed over-indebted.
What Options Are There For South Africans Struggling To Repay Debts?
Stricter Monthly Budgets
Sticking to a tight budget is much easier said than done. Try create a forecast each month of where your money will be going. Break your living expenses down into fixed and variable costs.
Play with the numbers to try and figure out whether it is possible to have some money leftover each month. Try to see if there are any luxuries that can be cut out or reduced.
If your budget is already thin and is putting your debt repayments at risk or you are forced to use pay day loans, credit cards or other revolving credit facilities each month, you may need another solution.
It makes sense to look for an option that would allow for just one payment each month that was preferably lower than the sum of all the current repayments.
There are two types of debt consolidation. A consolidation loan and debt counselling.
A consolidation loan is a large personal loan used to settle all smaller debts and be left with one loan to be repaid. Credit providers have set rather strict criteria for these loans as they are high risk, due to being large, unsecured loans and generally needed by those who have lots of debt already.
Debt counselling is a formal debt rehabilitation program introduced in the latest National Credit Act and governed by the National Credit Regulator. A debt counsellor formally negotiates with all the consumers credit providers to reduce monthly installments and interest rates.
The consumer will pay one, lower installment under the process. Once all debts have been settled the consumer receives a clearance certificate and will be debt-free.
There are other, stricter debt relief options available such as sequestration, however, these result in the consumer voluntarily handing over assets in a legal process to settle debts.
Before making a large financial decision, speak to a trusted debt counsellor who can give you the correct advice. A free assessment can help you understand your position and current options.