The regulators advice for managing debt
The South African credit market is regulated by the National Credit Regulator (NCR), which was established in 2005 to oversee the National Credit Act. Along with monitoring existing licensed credit providers, the NCR provides consumer education, research and investigation of complaints from the public about credit providers. The NCR recently published an insightful guide educating consumers on managing debt. Here are the main points from that guide to help you if you believe you are in or entering, financial hardship.
What is over-indebtedness?
Over-indebtedness occurs when you are struggling to meet the repayments of your existing debts. For example, if you have recently taken out a new line of credit and found that your outgoings each month are exceeding your income you may struggle to pay your debt in a timely manner. In such instances, you may feel stress, which can be compounded by pressure from your credit providers to make repayments.
The signs of being over-indebted?
The NCR has outlined some instances that may indicate you are or are becoming over-indebted. We advise that you review the below points to see if have recently experienced any of them. If so, it may mean you are in financial hardship and could benefit from assistance from a debt counsellor.
- You borrow money from others to repay some debt.
- You have skipped some payments on certain accounts to pay others. You hope to make up the payments over the coming weeks or months.
- You are struggling to pay your bills at the end of the month.
- You have received letter or notifications from creditors about your missed payments.
- You have had judgements granted against you.
- You are thinking of being placed under administration.
If you are over-indebted you have a few options that can help you recover your financial position. Firstly, contact your credit providers and discuss your situation. Most credit providers will attempt to work with you to renegotiate your payments terms and interest rates. For example, they may lengthen the loan period and reduce your interest so that your monthly repayment amount is lower and more affordable.
If you cannot negotiate better terms with your credit providers you can contact a registered debt counsellor. Debt counselling is a process where you are declared over-indebt and your debt counsellor will work with your credit providers to negotiate a restructured payment plan. The restructured plan will involve paying a single, reduced instalment to a Payment Distribution Agency (PDA), who will use the payments to repay your debts to the credit providers. In addition to restructuring your debt and dealing with credit providers, the debt counsellor will provide the following help:
- Budget advice
- Basic information relative to resolving day-to-day credit problems.
- Monitor your payments to credit providers
- Support and after-care services.
All debt counsellors need to be accredited by the NCR to operate. To find a licensed debt counsellor in your area, click here:
Not yet over-indebted but slipping out of control?
You may have read the signs of over-indebtedness above and thought ‘this isn’t me yet but it may be soon’. If so, there are adjustments you can make to your daily routine and life that can help reduce your spending and allow you to take back control of your finances. Firstly, it is important to create a spending plan (or monthly budget) and stick to it. Examine all your outgoings and see where adjustments can be made. A few examples include;
a) Reduce your spend on ‘luxury’ items each month. These are items that are not essential to your daily life and could allow you to free up money to repay your debts. Luxury items include; Alcohol, Tobacco, Entertainment, Club/Gym Memberships, TV and Gambling.
b) Do you drive an expensive car? If you downgrade your car to a less-expensive model, your monthly instalments will decrease and you will have extra money to pay your debts. You could also consider getting rid of your car entirely and using public transport as this will reduce your outgoings even further.
c) Your house may be unaffordable if it is too expensive. You may need to consider selling it or renting lower priced accommodation that will allow you to live within your means each month.
d) Review your insurance policies. You may find that you are paying insurance each month when it is not necessary. Insurance policies can be confusing and if you find yourself struggling you could opt for assistance from a financial advisor.
If you have thoroughly reviewed your outgoings and made adjustments, but still find that your income doesn’t cover your monthly cost, you may want to look at ways to increase your income. You could look for a new higher paid job or, if possible, take on a second job to supplement your income during a period where you need to repay a larger amount each month.
Once you have restructured your finances to a point where you are confident about meeting your debt repayments each month, do not veer away from the plan. Finally, ensure you pay off the most expensive loans first, such as microloans and credit cards as failure to make these repayments will likely result in incurring higher charges/fees and increase your chances of spirally into a cycle of debt.
Do not let your debt add stress to your life. There is such a thing a ‘good debt’ as being granted credit can help you manage your cash flow, leverage your wealth and enable you to buy essential things in the event of unforeseen emergencies. If you borrow money and live within your means, the chances of becoming over-indebted are minimal.