MONEY CLINIC | I won't earn any income until the end of June - how will I pay my debt?

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Almost half of the 25.1 million active credit consumers in SA are behind on their payments
Almost half of the 25.1 million active credit consumers in SA are behind on their payments

Due to markets and festivals closing until the end of June, a Fin24 reader will have no source of income and wants to know if there will be a payment holiday period.

He writes:

I am a sole proprietor of a small unregistered business. My income comes from festivals and markets. With all of them closed already until the end of June, I won't earn any income. How do I pay my credit cards and personal debts? Will there be a holiday period? I am really struggling to make ends meet as it is. 

Benay Sager, Chief Operating Officer at DebtBusters responds:

It is always difficult and heartbreaking to see what small businesses, self-proprietors and self-employed individuals go through during the tough economic situation – they are always the first and hardest hit. So, we empathise with you and all other readers who are going through a similar situation.  

South Africa has been hit by the trifecta over the last several months, all three of which has had a compounding impact on the economy:

1. Already slow macroeconomic growth resulting in less disposable consumer income.

2. Double-downgrade by international ratings agencies making it much more expensive for all entities in South Africa to borrow money. 

3. Lastly, the local impact of a global pandemic by way of country-wide lockdown - resulting in loss of income for those working in hospitality, retail, entertainment and other service industries. The net impact of these factors has been an immense loss of consumer confidence, which has really affected future events, consumer spending, and as a result, future earning potential.  

There are two avenues to explore in answering the question:

1. Income boosting options.

2. Debt payment options.

Let us tackle one at a time.  

Income boosting options: The reader mentions being an unregistered business, which we can also assume means that the business or the individual has not made any contributions towards UIF. If there were no contributions made to UIF, then the individual would not qualify for the relief available via that channel.

If the business is not registered, then the business would unfortunately not qualify for TERS (temporary employee relief scheme).  

Debt payment options: Based on what your reader indicated, we can assume the credit card and personal debts were opened under their personal capacity.

Here, many banks and lenders have announced temporary "payment holidays" that essentially pause expected debt repayments for a number of months. Each bank or lender has their own set of qualifying criteria in terms of who can take advantage of these payment holidays, so your reader is best advised to get in touch with the lender with whom they have credit card and personal debts.

The lender will most likely want to know when the reader can restart paying back the amounts owed. Even though the payment holiday schemes provide much needed relief (if one qualifies for them), the payment holidays will result in higher total cost of paying back in the long term. With all that said, payment holidays are a good option if one qualifies for it and needs the immediate relief, especially for those consumers who may be banked with one entity (meaning, they have a credit card and personal loan with the same bank, for example).  

For consumers who are banked with multiple entities (say, they have a credit card with bank A but a personal loan with bank B) and can demonstrate some form of income, debt counselling is also an option that could be considered.

If this is the case, we urge your reader(s) to get in touch with NCR registered, reputable debt counsellors to get a free assessment done over the telephone, and to receive advice on the best options available for them to tackle their debt during this difficult economic stretch.  

Questions may be edited for brevity and clarity.

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