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Three options for debt trapped South Africans

19 August 2020 Stangen

Even before the COVID-19 pandemic, South African consumers were up to their ears in debt, owing a staggering R1.9 trillion at the end of 2019.

The pandemic has only made matters worse: according to a recent survey by information provider TransUnion, eight out of every 10 South Africans say their household income has been negatively impacted by the crisis.

Stangen’s Managing Director Marius Botha, says a combination of an economy that’s been stalled for a decade, relatively easy access to credit and an increase in consumerism has resulted in millions of over-indebted South Africans who don’t know which way to turn.

“South Africans have a serious debt problem, and it’s not getting any better. When people are losing jobs, or battling to find jobs, they will be even more inclined to borrow money to keep the home fires burning,” said Botha.

So what options do you have if you’re struggling with debt? There are three main courses of action, says Botha.

Apply for debt review
Debt review (or debt counselling, as it is sometimes referred to) is a legal process every South African can use if you are over-indebted – that is, if you cannot meet all your financial commitments. Through the debt review process, a registered debt counsellor negotiates with your creditors to reduce your monthly repayment commitments, easing your cashflow and giving you some breathing room.

But there are a couple of aspects to bear in mind before signing up for debt review, says Botha.
• It’s a legal process, that will see you officially placed under debt review.
• You cannot get access to any other credit while you are under debt review.
• Your credit isn’t written off. You simply reduce your payments to help you get back on your feet.
• If you don’t make your new restructured repayments, your creditors can take legal action.

“If you’re constantly running out of money every month because you have too much debt, you may well be a candidate for debt review,” says Botha.

Take advantage of the new debt relief bill
The National Credit Amendment Bill – known informally as the debt relief bill - was signed into law by President Ramaphosa late last year. It gives qualifying applicants a 2-year window to improve their financial situation. In that time, their debt will be suspended – that is, no payments need to be made to credit providers - and ultimately the entire amounts of outstanding debt could be written off if things don’t improve.

There are three qualifying requirements, says Botha:
• You need to be over-indebted
• Your gross earnings need to be less than R7500 per month for the last six months
• Your unsecured debt needs to be less than R50 000.

Try and consolidate your debts
If you have several personal loans, each with their own repayment, you could consider consolidating everything into one loan with one monthly repayment. The idea behind debt consolidation is that you collapse all your loans, with higher interest charges, into one loan, with a lower interest charge - and possibly a longer repayment period.

“The main thing you need to know is that if you’re in debt, you have a couple of options available. Find out if debt review is something you want to consider, or speak to a financial advisor who can help you review your budget and look into consolidating your debts,” said Botha.

Quick Polls

QUESTION

Financial behaviour experts suggest that today’s risk modelling methodologies ignore your client’s emotional ability / behavioural capacity. What are your thoughts on spicing up risk profiling tools to make allowance for your client’s financial behaviours

ANSWER

[a] Bring it on; my client’s make too many irrational financial decisions
[b] Existing risk profiling tools are adequate
[c] Risk profiling tools should be based on the model / rational client
[d] The perfect risk profiling tool is science fiction
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