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Setting up a get out of debt plan

Interest rates might be at their lowest in 29 years,   almost half of South Africa’s credit-active population is drowning in debt.

Last week, the Monitor of the National Credit Regulator (NCR) released figures which show that in the fourth quarter of 2010, 47% of 19 million credit active consumers had impaired records.

The debt-to-income ratio is alarming and currently sits at 78.5%. This means for every R100 a household earns, R78.50 of it will go towards paying off debt.

Darrell Beghin, a manager for credit information and research at the NCR,  believes these figures prove that consumers are still under pressure.

He said: “The fact that the number remains high even with the current low interest rate is evidence of the pressure consumers are experiencing in repaying their debt.

“However, it is important to note that the rate at which consumers fall into the arrears categories has slowed.”

Can I get out of debt?

Getting out of debt might seem impossible, especially for people who are struggling to even buy their basics every month.  You might feel stuck, hopeless, helpless, but it’s important to understand that there is a way out of debt. It might not be the easy way out, but there is help.

The biggest thing to keep in mind when you want to change your financial situation is that you have to be honest with yourself and you have to be willing to work at sorting out your issues. There are no quick fixes and any ‘quick fix’ will probably just result in more problems in the long term.

Many people think that simply taking out another loan, often with a very high interest rate, will solve the problem.  More often than not,  a loan will not be granted because of the high levels of debt (and possibly defaults) people find themselves in.

If you are in arrears or blacklisted, the chances of being given a personal loan are very slim. Instead, you should work towards getting out of debt without using more credit.

Five steps to kick start a get out of debt plan

1. Firstly, you need to establish just how much debt you are in. Check all your statements from overdrafts to store cards and personal loans. Add up all the outstanding amounts.  Remember to breathe, it might be a shock.

2. See how much you are spending on paying back debt each month. What percentage of your salary is this? If you are spending more than you are earning, get in touch with a debt management consultant immediately. If you are spending between 0 – 30% you should be surviving. Anything more than that or if you are not surviving, you might need to call your creditors and negotiate a new rate or an extended payment period.

3. Take stock of your expenses and see what you can cut out, especially with luxuries like cable TV and excessive phone and internet bills. Also  take note of how and where you do your grocery shopping.  Plan your meals, buy no name brand cleaning products and try and avoid shopping on an empty stomach.

4. Set up your new budget. Calculate everything down to the last cent. Implement it and stick to it. Start paying off the cards or loans with the highest interest first.

5. If you are not coping after trying the budget plan for three or four months, contact a debt management consultant

 

 

 
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