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HOW TO GET OUT OF DEBT

Research conducted by the World Bank reveals that more than 11 million creditactive South Africans care over-indebted. However, according to Debt Counselling South Africa, these statistics have not stopped consumers from taking on more credit, resulting in 70% of household earnings being spent on repaying debt, and hence, impacting on disposable income. Debt management expert Wikus Olivier explains that a lack of financial literacy is one of the root causes of South Africa’s state of indebtedness. Young professionals are not taught how to manage their finances – especially when their earnings bracket shifts. “For a young professional who’s used to earning R10 000, an increase in their salary may be overwhelming, especially when they have never been exposed to sound financial advice on how to budget, manage and work with credit,” he explains.

For brand manager Mathapelo Mokoena, 36, both family obligations and a change in lifestyle led her to spend much more than she earns, especially after her promotion, which came with an almost

50% salary increase. “I was raised in a very close-knit family where obligation and support were the glue that kept us together. When I started working it was expected of me as the eldest to assist my parents with the monthly family necessities, such as rent and groceries.”

Mathapelo adds that the more she climbed the corporate ladder, the more these responsibilities started to pile up. “My parents had done their part by working hard to make sure that I had a decent tertiary education, and now that I am an established careerwoman and earn far more than I did when I first started working, it’s my responsibility to see that my two youngest siblings enjoy the same opportunities.”

Her lifestyle has come with increased expenses. She now drives a fancy car, wears designer clothes and dines out more than three times a week, sometimes for business, sometimes for pleasure – but more often than not, as a way of keeping up with her peers and showing off her success. “I’m an African and I do understand that no amount of modernisation will change my family structure and moral conscience overnight. However, my family responsibility, paired with my desire to fit in and be relevant, has slowly pushed me to rely heavily on credit and accumulate debt – even though I find myself earning more than I did before.”

According to Gerald Mwandiambira, the author of Imali Yami, Chelete Yaka, My Geld, My Money, and the acting CEO of the South African Savings Institute, most people fall into the trap of taking on more responsibility as soon as they get promoted. He attributes this to cultural obligations, because most of us are expected to help and support our extended family, especially when they have contributed financially to our success. “We take on more responsibility out of obligation or fear of disappointing others,” says Mwandiambira.

“Unfortunately, it has become the norm to sacrifice personal financial wellbeing for the good of the family – by taking on responsibilities without having a personal financial plan.”

However, according Wikus Olivier, this is only one of the causes that lead people to take on additional financial burdens when they start earning more. “Cultivating a simpler lifestyle culture is key if we want to achieve financial freedom. The reality is, people’s perception of progress is skewed by their vision of the appropriate lifestyle. Young professionals who are advancing in their careers are constantly trying to keep up with the Kardashians and measure their success by the number of assets they accumulate,” says the debt expert.

He adds that we need to move into a space where we are financially literate, and have savings. We must assess what is valuable to us as individuals, instead of trying to live up to other people’s lifestyle expectations.

If you find yourself in debt, here’s what you can do:

Seek help immediately. Many employee assistance programmes give financial tips for free. This may be a starting point for many. “If you feel that you’re trapped by debt, try to use as many free advice avenues as you can find. But unfortunately, good quality help always comes at some price,” says Mwandiambira.

So, like Mathapelo, if you’re feeling overwhelmed by the daunting task of reorganising your finances, prepare to fork out some money for professional help.

Speak to a finance professional.

“Depending on the severity of the debt, debt counselling and review services may work. In many instances, however, reorganising one’s funds and creating a plan together with a paid professional can get people out of debt, as the debt may have caused them to wrongly allocate their capital because of limited knowledge about financial management,” says Mwandiambira.

He further explains that understanding and unpacking the extent of the financial damage with the help of a financial planner is critical as this will provide a consolidated picture of your debt and determine whether you need to call on a debt counsellor.

Go for debt counselling.

What is debt counselling, when should one consider going this route, and why do experts say it should be the last resort? According to Debt Safe, a debt review company, debt counselling is a process that reworks your debt payments into a new, affordable and consolidated repayment plan. Mwandiambira says: “Debt counsellors counsel and deal with debt, for a fee.”

Olivier explains: “As debt management experts, our role is to negotiate with one’s creditors on reducing payment instalments. Most importantly, we offer people asset protection.”

He adds that the purpose of this process is to design a new repayment plan that will empower you to pay debt, and ensure that you’re still able to provide your family with essential necessities.

Both experts agree that debt counselling is not an overnight solution; it takes guts and patience. But it protects you against creditors who can’t take legal action against you while under review, although it is noted in your credit records. Also, while under debt review, a person can no longer get access to new credit. Debt counselling costs money as you will be charged for the service. Due to an agreement made with your creditors to decrease your instalments, it will take longer for you to pay off your debts and you will pay more interest.

Re-evaluate and reshuffle.

Rre-evaluating and reshuffling your finances can be the initial focus. “It’s thus important to know what you earn and what you spend on. No one is so far out the line for debt counselling because there are many steps one can take.

Olivier adds that many of us live a cashless lifestyle, with debit and credit cards used as our daily currency. “People don’t realise that invisible money can result in them falling into the debt trap as they continue to spend money they don’t have.”

To help manage this, Olivier suggests that people consider applying for an overdraft or using access bonds, which allows borrowers who have paid extra money towards their home loan to use a portion of the money if the need arises. He adds that these two options have cheaper interest rates and are more affordable than credit cards. Having more money comes with added responsibilities as well as lifestyle changes. It is vital that, as your career advances, you educate yourself about how to manage your finances.