Are you overindebted?

With debt levels increasing at 13% more than income levels, South Africans are more debt-stressed now than arguably ever before. This is iterated by the National Credit Regulator’s (NCR) report that nearly half of credit-active consumers in South Africa have damaged credit records.

However, only a few seek the necessary help. Justmoney delves into what it means to be overindebted and what your options are.

Tip: To get the help you need with your debt today, click here.

“South Africans’ net income has declined markedly in real terms since 2015 and consumers are making up the shortfall by large-scale borrowing,” says Debtbusters, a trusted South African debt counselling company.

According to Debtbusters’ latest Debtometer report, consumers required 64% of their net income to service their debt every single month. This, added to the flatline trend when it comes to income growth, makes for a very financially strenuous situation.

For this reason, South African consumers are supplementing their income with unsecured lending on a large scale, says Debtbusters.

While debt is not necessarily a bad thing, unsecured debt is

“Unsecured debt can be classified as short-term debt that’s not supported by any collateral like a house or a vehicle. It’s typically expensive with high interest rates because it’s a higher risk for the lender. Personal loans are a form of short-term debt that’s very popular and helps consumers fill the gap,” adds an in-branch Absa consultant.

What’s more, these short-term loans are being utilised to supplement everyday costs such as food, transport, and school fees to name a few, says Benay Sager, chief operating officer of Debtbusters. Given this, it’s no surprise that increasingly more South African consumers are becoming overindebted.

But what does it mean to be overindebted?

According to financial experts, it means that your debt expenses outweigh your income. While this sounds fairly straightforward there are many people who are in denial.

“Being overindebted often makes one think of someone who is barely able to feed themselves and their family, or is on the verge of having their home or vehicle repossessed. But the truth is there are many people who don’t necessarily fit this mould but are gravely overindebted too,” says the Absa consultant.

Borrowing from one lender to pay another is how many are getting by and while they’re making payments and seemingly keeping their head above water, they will soon reach the end of their rope, adds Sager.

Often this realisation only comes once these consumers find that they’re no longer able to access any further credit. At this stage their credit records have typically been tarnished and they’re in a financial gridlock.

While it’s scary to reach this point, rest assured that there’s trusted help available.

What are your options if you are over-indebted? 

Initiated by the NCR, debt counselling is a debt rehabilitation programme that offers South African consumers a chance at restructuring their debt through a legally approved process and plan.

This process can be outlined by the following 7 steps:

• Application -This is where you as the consumer recognises you need help, and fills out an application form. Once this is completed you should receive a call from a debt counsellor to explain the way forward to you.
• Debt assessment – This step is vital as it assesses whether you’re overindebted and where you may have gone wrong.
  
• Creating a budget – This is where your income and expenses are put into perspective and your debt counsellor draws up a corresponding budget or plan.
• Negotiation of payments with creditors – Here your debt counsellor will renegotiate a manageable repayment amount on your behalf.
• Approval of plan – This is a legal process that ensures the plan is binding.
• Implementation – The plan is put into place and you need to make your first payment.
  

Debt counselling is a great way to receive instant cash-relief together with the peace of mind that your debt responsibilities are being seen to, says Debtbusters.

“While the industry is still fighting the stigma created by irresponsible and illegitimate debt counsellors that aim to make a quick buck instead of assisting the consumer, there is quite a bit being done on the part of the regulator and those industry players that seek to truly help the consumer,” Sager adds.

“The number of clients completing debt counselling successfully has increased by 60% per annum over the last four years, indicating that for SA consumers under financial strain, debt counselling is an effective mechanism to get financially fit again.”

For more information about the debt counselling process and how it can help you – click here.