How to handle debt
4Feb, 2021

Debt – the second pandemic

By: | Tags: | Comments: 0 | February 4th, 2021

Devastating as the coronavirus is, the deadly disease is not the worst thing that happened in 2020.

In the second quarter of last year, disposable income of South African households contracted by 49.7%, forcing many people to take out loans to pay for day-to-day essentials. During the first lockdown, 1.6 million South Africans took advantage of payment holidays offered by financial institutions*. But, while this enabled them to keep the wolf from the door in the short term, interest on loans continued to mount up, resulting in an additional R20.7 billion in debt.

Whilst last year’s interest rate cut to 3.5% was good news for borrowers, it was a blow for investors, especially retired people living on interest from their savings. Those forced to dip into their capital to pay for food, medicines and transport may never recover. Even if interest rates rise again this year, the loss of capital means their income still won’t return to the previous level.

Dealing with debt
If you are struggling to meet your commitments, it’s essential to let your creditors know as soon as possible that you are in difficulty. Don’t just miss payments and hope for the best.

Prioritise your debts and pay the most important ones first to avoid the most serious consequences. For example, your first priority might be to cover rent and electricity bills, so you don’t face eviction or having your lights and water cut off.

Don’t be embarrassed to ask for help. Many people turn to family or friends first. But with the impact of coronavirus having affected almost everyone, they may not be in a position to help. Another option is to seek help from an authorised debt counselor, who can help you decide on the best course of action. Companies like Debt Rescue, National Debt Advisors (NDA) and Zero Debt can consolidate your debt and/or negotiate more favourable terms with your creditors.

What not to do
Do not be temped to take out a loan to pay off some of your debts or cover day-to-day living expenses. This is likely to make your financial situation worse, especially if you have difficulty paying the loan back on time.

Do everything possible to avoid cutting back on items like medical aid and insurance, including life and funeral cover. The effects of these cut-backs could be disastrous.

Cutting back
If you have less money to manage on every month, rather than burdening yourself (or your family) with additional debit, consider making fundamental changes to your lifestyle to accommodate your new financial reality. Here are some ideas to consider:

  • Sell your car
    If you are financing a car, consider selling it (or trading it in for a cheaper model). How often do you actually use your car? Calculate how much it costs in repayments, fuel, servicing, new tyres, etc against the cost of using Uber to visit friends or get to and from the shops. As we age, our eyesight and reaction times can be affected, so not driving yourself could even be a safer option.

    Many retirement homes offer shuttle services to the local shopping centre or hospital. So if you are thinking of moving, this is another saving to take into consideration.

  • Sell items you no longer use
    Minimalistic living is in! Unfortunately older people, in particular, have often accumulated a plethora of “stuff” – including furniture items that actually get in the way. Now is the time to sell the chair that no one sits in or the display cabinet (and the ornaments inside), as well as kitchen and garden implements you haven’t used in years.

    It’s easy (and free) to sell almost anything on Facebook. But don’t be tempted to spend the money you make on a trip to your favourite restaurant – use it to pay off a debt or deposit it straight into your savings account.

  • Re-negotiate your cell phone contract
    Do you really need the latest iPhone? Instead of paying for an expensive contract that includes the cost of phone replacement every couple of years, hold onto your old phone and only pay for the calls and data you use.

    Since airtime is more expensive than data, use internet based apps like WhatsApp or Facebook to make calls. A bonus is that these options offer video calling, so you can actually see your children or grandchildren when you ring them.

  • Ditch expensive hobbies
    How much would you save if you cancelled your gym membership or gave up your weekly game of golf? Whilst these activities may be enjoyable, if you can’t afford them, there are other options to maintain fitness. Try one of the free home exercise programmes available online, or go for a walk or run around your neighbourhood.
  • Shop online
    If impulse items continually find their way into your shopping trolley, online shopping can remove the temptation. Make a list of what you need and stick to it. You’ll save money driving to the shops and it’s safer right now.

Mental Health issues
As the stress of indebtedness increases, we are going to see a huge increase in mental health issues, exacerbated by the isolation and loneliness of continued lockdowns.

Worrying about debt can make you feel physically ill, unable to sleep or eat properly. You may feel withdrawn from friends and family and find it difficult to concentrate on work or other responsibilities.

If you feel depressed or have suicidal thoughts, seek immediate help from Lifeline 0861-322-322 or SADAG (The South African Depression and Anxiety Group) Suicide Crisis line 0800 567 567 or visit their website www.sadag.org

No matter how bad your debt problem seems, there are people who can help you to overcome it, so you can continue to enjoy life.

[*Survey conducted by Fintech platform, PayCurve]