IT’S time to get frank about debt. Clearing your financial slate starts with you taking responsibility for your expenses and planning, not taking on more debt to consolidate existing debt.
Data from DebtBusters released recently showed that debt had worsened for most income groups in South Africa.
On average, consumers have 20% more unsecured debt in 2022 compared to 2016. Those taking home R20 000 or more have unsecured debt levels that are 54% higher than in 2016, according to the data.
The financial situation of South Africans continues to spiral downward, aggravated by the impact of the the coronavirus pandemic on job losses, salary cuts and the like. And although the petrol price is set to decrease this month, the recent high cost of fuel also caused a ripple effect, like increases in public transport costs, food and the general cost of living, have further exacerbated the situation.
The South African Reserve Bank (SARB) had hiked interest rates by 200 basis points since its hiking cycle started in November last year, meaning people in debt should be concerned.
Sanjith Hannuman, a financial adviser, who is also the managing director at Avinash Consultant and Actuaries, said despite the dire circumstances, there are ways and means of working out of your debt, if you think outside the box.
“If you are already in a situation where you have a problem with your debt, rather speak to a professional who is experienced to help you. Don’t talk to a loan shark or take up these offers that are often SMSed to us. For example, taking a R100 000 loan to settle all your debt when the interest rate they are going to be charging is probably around 120% over 12 months.
“They are giving you a quick fix to a larger problem, which in the end will get worse because of that decision. The bottom line is, with these quick fix loans, ask yourself the question: why would someone want to give me money to settle my debt?” he said.
Hannuman said before you consult a professional for help, you must look at what steps you could take to help yourself.
“The first thing you must do is start with your bank statement. You need to check what money is coming in and what money is going out, and what is not supposed to be coming off your bank account.
“You have to look at what are the things that you are not aware of that may be coming off your bank statements. Clear this up with the bank, so you have a clear understanding of what your expenses are and you know what your income is. So you have to try and keep your expenses within that income,” said Hannuman.
The second thing that you need to look at is your expenses.
“Ascertain what is it that you need and what is it that you really don’t need. Look at things like death cover, car insurance, medical aid, etc, and determine: of all of these expenses, what can be renegotiated so that your expenses are reduced.
“You start off with things that are close to you, from the perspective that you would need these things to survive. Then you start moving on to items like your cellphone bill, the different foods that you purchase, etc, and you will pick up your spending pattern.
“If, for example, you find that you are swiping at a supermarket 20 times, look at how this can be reduced. If you are buying takeout more often, compare the cost of that takeout to the cost of buying the food and cooking it yourself. You will probably see you that you could save hundreds of rands. Remember, spending habits can be broken,” he said.
Looking at the interest rates that you are paying is equally important.
“These are negotiable. You can call the suppliers or the banks or whoever you are owing the money to. Have an open conversation so that you can ask for a reduction in rates. They could tell you no, but at least you have tried. It is the same with credit card debt. Generally, the interest rates are higher on credit cards and you can also request for a decrease in interest rates.”
Assessing your investments is equally important.
“If, for example, you are making a 10% interest on an investment but you are paying out in excess of 20% in interest on debt, then it doesn’t really make sense.”
Consider restructuring your bond interest.
“These interest rates are normally at a lower rate than your normal expenses. Rather renegotiate repayments on your bond. For example, if your bond is R5 000 a month and you are currently paying R10 000 a month, rather take that extra R5 000 and service where the debt is high. When that higher debt is brought down, then you go back to paying the full amount of R10 000 on your bond again.”
Hannuman said if you have to write down all of your debt, assess what are the interest rates that you are paying and how much you are paying, and how long is it going to take to pay it off. Do not look at the minimum amount that is needed to service the debt.
“Because then all you are doing is actually just servicing the interest. In 17 years, you are still going to be owing the same principal amount. People need to understand, why do they have a minimum amount that you have to pay? It’s because you are paying the interest only, not your principal amount.
“It’s like with a home loan, in the first five years we are not servicing the actual debt, you are only servicing the interest. It’s only when you start paying more than what you are actually supposed to be paying that you start seeing the total principal amount reduced.”
And, if worse comes to worse and you are still not breaking even, still do not consider more debt, urged Hannuman.
“At the end of it all, if you find out, for example, that you are earning R15 000 a month but you actually need R16 000 month to get by, then do what you must to get an additional income. Get another job, start a side hustle, do something to earn extra money to support your needs instead of going into more debt.
“The problem with us South Africans is we believe that if we are working an eight-hour day and come home to your family, the day is over. But you can work more jobs to get additional income. There are many successful countries where people have more than one job, some of them have two or three.
“Remember buying things is fun, but getting out of debt is not. The problem is we want to live a lifestyle that we cannot afford. Unfortunately, it’s a long price that we end up paying when we end up servicing this debt over many years.”
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