Escape the debt spiral

2010-09-04 13:35

Like many young South Africans Malcolm had to pay for his studies by taking out a student loan, so he started his working life with debt.

Once he started working, rather than focusing on paying debt and building up a savings fund, Malcolm splashed out and bought the things he felt he deserved after studying so hard.

“I just spent my money. I got a ­cellphone contract, clothing ­accounts and bought a house, I didn’t think about saving,” he says.

Then disaster struck. Malcolm’s father became ill and his parents looked to him to help out.

With no savings and under pressure, ­Malcolm went to a mashonisa (money lender).

This started him on a path that ­spiralled out of control. He lost his home, which was eventually sold for less than he owed and Malcolm ­became dependent on debt to make ends meet.

Today R5?000 of Malcolm’s salary goes just to meet the monthly repayments on his short-term expensive debt and he survives on a R3?000 ­revolving credit facility with a large micro-lender.

Because he cannot meet all his ­obligations, at the beginning of the month Malcolm withdraws cash to use for his daily expenses before the debit orders hit his account.

This has made the creditors more aggressive about debiting his account and they often put through debit orders before he is paid.

Malcolm often misses his repayments simply because he cannot ­afford to pay everyone.

He incurs severe penalty fees and he is charged R105 each time a debit order bounces.

Jeff McDonald of First National Bank says: “Most people want to honour their debt, so they pay each person in turn?– one creditor this month, ­another next month. However, they don’t realise the contract requires them to pay off every single month and there are heavy penalties for not paying.”

The bounced debit orders have ­affected Malcolm’s credit record so severely it is unlikely he will qualify for further loans.

“I wish that I had saved from the first time I earned money. If I had savings I would have been able to help my father without going to a mashonisa.

“I also don’t think I should have bought a house so early. I should have waited,” says Malcolm.

He is determined, however, to sit down today and face his future.

He wants to set a goal to be ­completely debt-free within the next two years.

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