MORE MONEY MORE PROB­LEMS

HOW TO GET OUT OF DEBT

True Love - - Front Page - By Ka­belo Col­lis

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.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.