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​How to manage debt in difficult times

By Thuso Ngwagwe, Consumer Education Department, FSCA

2021/01/25

The COVID-19 pandemic continues to negatively impact on the economy, businesses and people across the world. Many people have either had their income significantly reduced due to pay cuts or have lost their source of income entirely. Families have been put under immense financial strain as they try to survive and honor their monthly financial obligations. 

The SA Consumer Credit Index report for Quarter two of 2020 by TransUnion, shows that the numbers of consumers defaulting in paying their debts has increased by an estimated 21% from Q2 2019. The concerning element of the data is that defaults spiked sharply despite account closures, payment holidays, and significant rate cuts in Q2. As the pandemic continues and the economy tries to recover from the decline, many South Africans are feeling the extra pressure and anxiety with regards to paying their bills.

Ensuring that you keep up with repayments is a difficult task with limited financial resources. Here are some pointers to assist in tackling your debts:

1.     Know who you owe and how much you owe them

You need to be completely honest with yourself when it comes to who you owe and how much you owe them. A free credit report from one of the credit bureaus can provide you with important information about your debt. It lists all the accounts that are on your name, the date the account was opened, the full outstanding amount, monthly installment amount, and also provides information on how you positively or negatively manage your accounts.

2.     Work out what you can afford to pay

In order to work out what you can afford to pay, you need to have a budget. A budget is simply a list of your income less your expenses. Your budget acts as a roadmap showing you where your hard-earned money will go every month. It will show you exactly how much your real earnings and expenses are and will help put an end to sleepless nights worrying about your finances.

Make a list of all your income (wages, salary, grant, maintenance, interest on investment) and another list of all your expenses (rent, food, transport, water and lights). Now subtract all your expenses from your income. 

Note: If your total income less than your total expenses gives you a deficit (negative balance), this means that you spend more than you earn, and you need to make some changes. 

See where you can cut your costs (start with the “wants”) so that your income is more than your expenses. Ideas to curb your expenses can be to: have less take-outs, cancel month to month contracts that are not a need, reduce the purchase of clothes, use a lift club, buy groceries in bulk (bulk savings) with friends and split the items. These ideas are a temporary measure to reduce your expenses in order to reach your financial wellbeing. Remember budgeting is a lifelong skill which must be done monthly in order to get a hold on your finances. Try the FSCA’s budget template here .

3.     Paying your debt and the consequences of not paying 

Now that you have done your budget, you will be able to calculate how much money you need in order to cover your debt. If you are in a situation where you are unable to make the full monthly payment, you can contact your creditors to arrange for a reduced installment until you get back on your feet.  

If you have successfully negotiated minimal instalments on your accounts with your creditors, you can start paying a little on each account. Once you pay up one account, use that installment to double up your payments on the next account. This is one strategy that you can use to pay off your debt. 

Note: Interest and administration fees will continue to be charged to your account. Remember by avoiding your creditors and not paying your debt you may be faced with legal action and a bad credit record. 

Warning: Having a low credit indicates to creditors that you are a risk borrower compared to someone with a better credit score. Creditors and lenders might make you pay for this risk by charging you a higher interest rate on all credit. 

The above tips can assist you in managing your finances better during difficult times. It is important to be open and honest with your family about financial matters. In this way, there will be a greater understanding of the situation and less pressure and stress. Teach your children different ways of handling financial matters when they are young so that when they are older, they will have the knowledge to live a better life. Always remember to be patient with yourself as you go through the abovementioned guidelines. Debt takes time to pay off, but it can be done!

To get more tips on how to manage your money, visit www.fscamymoney.co.za Or email: CED.Consumer@fsca.co.za  

To check if an FSP or financial advisor is authorised to sell you financial products and services, as well as which products they can sell you, contact the FSCA or click here  to check.

Switchboard: 012 482 8000

Sharecall: 0800 203 722 (FSCA)







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