Tackling debt head on provides hope
Crippled by debt and struggling to make ends meet is a fair way to describe life for millions of South Africans at the moment, with the Reserve Bank reporting that household debt to income ratio was 73.7% for the first quarter of this year, with predictions that the Covid-19 pandemic will push it upward.
For every R1,000 earned R750 goes to settling debts. This is double the 36% debt: earnings ratio prescribed by lenders.
Casper Le Grange owns Debt Council Group SA (DCGSA) which has offices throughout the Eastern Cape and Pretoria.
“With jobs collapsing people are borrowing simply to cover debt. As the old saying goes, when you are in hole, don’t carry on digging. People don’t like to hear it but the best advice is to review the situation with brutal honesty, cut out the nonessentials, get rid of cards, stop the unaffordable lifestyle luxuries and understand that moderation has to be the password.”
“Realising that one has hit the debt wall is humbling experience. It is time for a complete assessment of one’s situation, followed by an approach to all creditors, especially the bank’s if a bond is not being paid.
“Losing a house because of a head in the sand approach is avoidable through full disclosure.”
Le Grange’s concedes that it costs to go into counselling, both money and self-esteem. Many people refuse to acknowledge that they have come to end of the credit possibilities and can borrow no more.
“We preach moderation and reality. Many people leave debt counselling to the last minute. However when they do enter it their debt can be consolidated which always provides hope. They can see the light at the end of the tunnel, as long as they keep paying off what they can afford.”
With a view to a post-pandemic job world and steady incomes, Asavela Gwele, client relationship associate at 10X Investments said identifying hidden unnecessary cost is essential, especially with a view to long-term prosperity.
“Many people do not know what fees they are charged on their investments. High management fees eat away at savings. The difference between paying the most common fee of 3% vs a 1% rate can be huge. After saving for retirement over a 30-year period, you may have accumulated R1m in capital. If your fee over the years was limited to 1%, you would have R1,4 million.”
Saul Gur, financial manager at Teljoy: “If we’re regularly turning to credit and loans how can we ever hope to start to build financial security and wealth.
“First, we need to understand how debt holds us back and hampers our ability to get ahead financially. The second thing is to actively seek alternatives that help us sidestep the debt trap but allow for our needs to still be met.”
“People must expand their understanding of affordability, and investigate alternatives to high-interest credit. Easy to say in the middle of a pandemic when salary cuts and job losses are on the rise, but much harder to actually do.”
“Life happens and then the fridge packs up in the same week that the washing machine finally surrenders, turning to credit seems to be the only option. But there are less expensive and more flexible ways.”
One alternative, popular in developed markets, is rental economy. It’s provides access to consumer goods, without having to buy them on high-interest credit or hire purchase.
“A rental model such as a month-to-month contract, eliminates the debt burden of an upfront credit purchase”.
Internationally, companies like Aaron’s in the US and Rent2Buy in the UK have popularised the rental model while individual brands, including Ikea and H & M , are following suit, offering their goods as a rentable service, Gur said PayCurve’s recent survey showed 80% of South Africans now have unsecured loans to meet monthly obligations.
Losing a house because of a head in the sand approach is avoidable through full disclosure