Print out your bank statements and get the calculator: Tackling your debt in 2020

An increasing number of South African consumers are struggling to repay their debt on time. TransUnion’s industry insight report, published last month, shows that there was a rise in delinquencies, or non-payment of debt, in the third quarter of 2019, which is corroborated by the National Credit Regulator’s latest credit bureau monitor report.

Research conducted mainly in the US and UK shows that high household debt burdens affect consumers to a point that some reduce their productivity at work. UK finance firm Salary Finance, for example, says people with financial worries are more than 4 times at risk of suffering from anxiety and depression.

Benay Sager, COO of the Independent Debt Management Group, says that in South Africa more people are signing up for debt management at faster rates than in the past. Consumers are now struggling with repayments after signing six credit accounts on average, whereas they could manage over nine accounts a decade ago.

It’s a dire situation that most people are itching to get out of. But how should they go about digging themselves out of the debt hole?

Brendan Dunn, a financial planner at Verso Wealth, says your first step should be retracing the steps that led to your current debt situation. “What were the circumstances that drove you to apply for this credit? Was there an emergency that forced your hand?... Was it as a result of poor planning? Was there something you knew about that you never planned or provided for?”

Dunn says this retrospective look will help you better understand what you did wrong in the months before taking on new debt or additional credit, and whether it was avoidable or not. If recurring bad habits are putting you in your current situation, he suggests you ask yourself what the “emotional need” is that makes you spend more than you can afford. The goal is to them find more cost-effective ways to satisfy it.

Carla Oberholzer, debt adviser at DebtSafe, says managing your debt starts with budgeting "properly". While many people may have budgets, Oberholzer says it’s the unnecessary “spending leaks” that need to be tackled to get out of debt. “Print out your latest bank statement or the previous three months’ statements and get out that magnifying glass and calculator,” she says.

This way, you will have a real picture of what you are spending your money on and how it differs from your written budget, if you have one. Oberholzer says from then on, you can identify costs that should have been avoided and those that you must delete from your budget going forward, like certain contracts and curtailing your spending on takeaways and other luxuries.

The other thing you need to look at is the kind of debt you have and how you repay it. Many financial planners, including Dunn, consider unsecured credit - which includes credit and store cards, overdrafts and personal loans - the the debt to be eliminated first because of its higher interest rates.  Within unsecured products, revolving credit facilities like overdrafts, store and credit cards can lead to debt trap for people who are not disciplined as the money repaid is available for consumers to reuse almost immediately.

Emma Mer, CEO of FNB Loans, says a helpful tip is to switch qualifying credit into one personal loan. “By doing so you will benefit from having fewer monthly repayments to keep track off and, depending on how you structure the personal loan, could free up money every month,” says Mer.

Since personal loans have a fixed repayment term and money repaid to the lender is not available for reuse, unless you apply for a new loan, they might instil discipline to those who need it. However, this option comes with additional credit initiation fees and you will have to weigh how the new personal loan interest compares with what you were paying on credit cards and whether consolidating will benefit you in the long run.

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