With the cost of living having gone up, coupled with job losses and salary cuts, more and more South Africans have found themselves drowning in debt.
For some, going under debt review is an option.
A recent survey by Debt Rescue found that 85% of all South Africans need help either financially, emotionally or both as a result of the Covid-19 pandemic.
A further 55% required financial assistance but had no access to credit, it found.
Those who fall under this category should not borrow money from illegal credit providers such as loan sharks, said independent economic analyst, Bonke Dumisa, on Friday.
If people who have already borrowed money from the dodgy lenders are being threatened because they can’t meet their instalments, then they should report the matter to police, he said.
Alternatively, they can approach the National Credit Regulator to report the loan sharks.
Dumisa said that those who borrowed money from legitimate credit providers should first go to them to make repayment arrangements. If that does not work, then going for debt counselling is an option.
Debt counselling, said the CEO of Debt Rescue, Neil Roets, makes it possible for debt reviewing companies to negotiate with creditors to obtain a longer repayment period with smaller repayments without losing assets like homes and cars.
Dumisa said that unlike before, going under debt review does not come back to bite you at a later stage.
“As soon as a person has filled all their obligations, a letter gets forwarded to all the credit bureaus. The information remains on your profile and the credit providers can still take it into consideration when giving credit. However, it is not held against you,” he said.
The only way for some people to avoid going bankrupt or getting sequestrated, is for them to go to debt counsellors to restructure their debts.
He said that some people have landed themselves in debt because of “conspicuous consumption”.
“They were deliberately living beyond their means,” he added.
Roets said that Debt Rescue has seen a dramatic increase in the number of middle-class professionals seeking to enter the process of debt counselling.
Researcher at the The Pietermaritzburg Economic Justice & Dignity Group, Julie Smith, said that low-income households are getting deeper and deeper into debt and can’t pay their existing loans.
“At the same time, the cost of living has gone up,” she added.
During the lockdown they exhausted all their financial options, such as using up their savings and withdrawing money from their stokvel.
They also had to spend more during the lockdown, on food for instance, because children were not going to school and everyone was at home.
Whenever the Reserve Bank cuts the repo rates, said Smith, it does not help them because they don’t have bonds and are not paying for vehicles etc.
They have no legal instrument to help them.
“They are now worried about December and January, the festive season, church, and then getting ready for school,” she added.