Taking preventative measures to avoid being overindebted

The South African economy had long started to spiral downwards due to poor financial decisions. By spending more than we earned, we got ourselves into debt that we could not afford to pay back.  This has brought much distraught to our nation. Unfortunately, this was just the beginning of our troubles as the lockdown saw many workers lose their jobs and others being subject to pay-cuts, making it even more difficult to commit to our credit agreements.

Many of us went into survival mode as soon as the lockdown was extended leaving the essential budget item of ‘savings’ as possibly one of our last thought in our minds. We were forced to stretch our pockets to assist those close to us. Making long term life-changing financial decisions have been put to a halt to make way for the stringent monthly budgets to survive until the next pay-day. Stress and depression have taken a rise and many South Africans still ask themselves how they will be able to service their debts.

The truth is we neglected to prepare ourselves financially because we had not heeded the warnings that things may get worse, and we continued living lavish lifestyles which we could not afford. We need to face reality and call a spade a spade.

The Credit Ombud recommends that we fix our way of thinking so that we can fix our finances by considering that:

  1. Seasons change and you need to prepare well in advance for those cold and windy weathers.

While you are still employed, have a savings plan and when you can; pay more towards your debt. Do not spend more than you should and certainly not more than you earn. Your mindset should be that you want to live comfortably with less debt and more money in your savings account. Ideally, you should maintain a savings plan of, at least six months of your earnings.

  • You do not owe anyone a fancy house or car.

Living within your means starts with being honest with yourself. Budget!! You need to take an interest in your finances or else you will continue being overindebted when you can cut down on unnecessary expenses. Talk to your credit providers if you find yourself in a tight spot and you may be able to negotiate for a lesser installment or even trade in that fancy car for something less expensive. There are several options available, but you will never find out what they are if you do not change and start communicating.

  • Growth is gradual.

Many of us rush to ‘catch up’ to our peers. Once employed, we immediately want to play catch-up and buy the clothes, the furniture, the car, and many other possessions to show that we have ‘arrived’. That is when we get into unnecessary debt and eventually end up depressed because we find that much of our salary is going to paying off debt than taking care of other necessities. If you are planning to make a big purchase such a vehicle, plan for it by saving up for the car installment six months before you purchase it. That way you can see whether you would cope to pay for the vehicle and your savings could go towards a deposit for your vehicle. Also take into consideration the interest and fuel and add that to your monthly budget. Now you are making wise credit decisions.

  • The ideal lifestyle should be being able to live within your means.

It may be time to take a break from all lavishness. Call it a ‘fast’ if you should and take an active approach on paying off your debt. Instead of buying that expensive perfume, you could downgrade to pay off a credit card or revolving account or any other debt, then reward yourself with that expensive perfume once you have paid up the debt.

  • When in financial woes, do not despair, help is there.

For a problem to be solved, you need to face it dead on. The first important thing to do when you can no longer meet your financial responsibilities is to communicate. The longer you wait to disclose to your credit providers about your financial difficulties, the longer the rehabilitation process will take. Start by doing a monthly budget and then approach your credit providers to find alternative methods to help you pay off your debt. Keep a record of all your communication with the credit provider, ensure that the arrangement you enter into, is in writing. Should you feel that you are unable to make arrangements yourself, you may approach a registered Debt Counsellor to assist you. Be prepared to make sacrifices and that means scaling down on the fancy lifestyle for a while.

There is also the option of a voluntary surrender of goods. When considering surrender of the goods, make sure that you understand that if the goods are sold at an amount that is less than what you owed, you may still be liable for any shortfall payable. 

Talking about finances is never an easy task, and we would rather stick our heads in the sand than to face reality. It is sad to hear how many South Africans regret not making those wise decisions and did not have any savings to save them from the rainy days. It takes courage, determination, and discipline to find our way to financial freedom. Yes, we have made mistakes, but it is never too late to make changes that will have a positive impact in the future.

The Credit Ombud reiterates the importance of knowing your credit status.  To do so you need to contact the credit bureaux and request for your FREE credit report. Do not hesitate to contact our office for assistance pertaining to credit related matters.