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Help, My Debt Repayments Are Unmanageable

By Ayanda Ndimande, 22 November 2021

The South African Reserve Bank has announced an increase in the repo rate by 25 basis points to 3.75% and the prime lending rate to 7.25%, with rates expected to continue rising in 2022.

This has implications for South Africans, especially those with bonds who’ve been riding the benefits of an unchanged repo rate for two years. An increase in the repo rate means an increase in the cost of credit and many consumers will feel a pinch with the increase of payments. Before taking on any further credit, Ayanda Ndimande, Strategic Business Development Manager: Retail Credit at Sanlam urges consumers to check their credit scores, reduce debt where possible and to budget well.

South Africans’ Current Debt Situation

Overall, South Africans’ debt situation is getting worse, with the average debt-to-income ratio at an all-time high. This is according to the latest Debt Index from DebtBusters for Q3 of 2021, which shows that the average debt-to-net-income ratio now stands at 116% across all income bands and 145% for those taking home more than R20 000. With consumers already relying heavily on debt to supplement their income before the pandemic, the current debt situation is unfortunately no surprise.

Ndimande explains that many South Africans find themselves in a financial situation where their debt repayments are higher than their income. “This is often due to unregulated lenders known as “Mashonisas” who extend loans without any affordability assessments. Many consumers are also financially responsible for their extended family and their income is insufficient to cover their needs and those of their dependants.”

Reputable loan providers will always do a credit check first to assess your creditworthiness, followed by an affordability check. This includes a set of questions aimed at evaluating your income, expenses, and other credit agreements.

Do These Three Things First

Before you consider borrowing money or applying for a loan, Ndimande stresses the importance of these three steps:

1. Check your credit report

Your credit report will show you whether you are able to borrow money and will help you better understand your current credit position. You can check your credit score for free at any time via the Sanlam Credit Dashboard.

2. Do an honest budget

Be honest with yourself and write down your current income versus your expenses. This should give you a clear idea of whether you can afford the extra debt you are considering taking on.

3. Factor in the duration of the credit responsibility

It is important to factor in the duration of the new credit responsibility by asking yourself the following question: “Will I be able to afford this a year from today?”

Get Professional Help if You Need It

“Over 10 million South Africans either missed a debt payment, paid late, or defaulted on a debt in 2020 due to the impact COVID-19 had on our livelihoods,” says Benay Segar, Head of DebtBusters. He also notes that in the third quarter of 2021, debt counselling increased by 17% compared to 2020.

“If you find yourself in this predicament, it is important to face it head-on and speak to creditors so that a plan can be made. Ignoring the problem will only increase your fees and interest, and have a negative impact on your credit record,” adds Ndimande.

She strongly recommends seeking professional help to negotiate with creditors on your behalf and restructure your payments. DebtBusters notes that consumers who successfully completed debt counselling and received their clearance certificates in Q3 2021 paid back R300 million worth of debt to their creditors.

Ndimande concludes, “In tight financial times, situations can seem hopeless. That’s never the case. It’s imperative you start now. Start today. Consider ways to pay off the smallest debts first to free up income to pay off the next smallest debts, and so on. This creates a virtuous snowball effect. It’s also critical to reach out for help. Sanlam Credit Solutions offers free credit coaching, so you can create a realistic roadmap to get your finances back on track.”

Sanlam Life Insurance is a licensed financial service provider.
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