Jobless consumers over-indebted

19 Feb 2013

Data from Statistics South Africa Quarterly Labour Force Survey show an unemployment rate of 24.9 percent in the Q4 2012. 

Your home loan, rent, vehicle repayments and utility bills are classed as priority debts. Fail to pay these debts and you could lose your home or be evicted, have your electricity cut off, or have essential items (such as your car) repossessed.

Although this is a minor improvement compared to the unemployment rate of 25.5 percent in Q3, it remains worryingly high, says Credit Ombud, Manie van Schalkwyk.

The high rate of unemployment in South Africa continues to exacerbate already high levels of over-indebtedness in South Africa, he says.

“Many people simply can’t find work and this is affecting households’ ability to pay back their debts,” says Van Schalkwyk.

Van Schalkwyk explains that the expanded definition of unemployment, which includes people who have stopped looking for work, was at 35.9 percent in Q4 from 36.3 percent previously.

The ratio of household debt to disposable income amounted to 76.3 percent in Q2 2012 and in September 2012, the National Credit Regulator (NCR) reported that of the 19.69 million credit-active consumers, more than 9.25 million (47 percent) had impaired records, he says.  

Van Schalkwyk cautions consumers who have lost their jobs and who are unable to find work to contact their credit providers as soon as possible and tell them about their change in circumstances, to improve their chances of renegotiating their repayment terms. 

“Credit providers are more likely to be willing to negotiate lower repayment terms the sooner they are told about your loss of income.

“Once you are three or more months in arrears, it may be too late and you could be negatively listed at a credit bureau.”

He says many consumers apply for credit, assuming their income is secure, but do not plan for a loss of income. 

“If you do lose your job, ensuring that you pay off your debts on time should remain a priority, even if this means selling some of your assets to do so,” he says.  

Van Schalkwyk says the longer you have outstanding debts, the more you will pay in interest charges and eventually debt collection and legal fees too.

Tips on dealing with debt if you lose your job:

Check if you have cover

You may not realise that you have income protection cover. It is very important to ask all your credit providers whether your agreement is covered by insurance.

Some credit insurance policies pay the monthly instalment for a few months and others may even settle the entire outstanding debt.

Get a clear idea of what’s coming in and what’s going out. The amount that’s left after paying for your household bills, your living expenses, plus repayments and interest on anything you owe is what’s available to start paying off your debts more quickly.

Report the claim before you fall into arrears with the monthly instalments as some policies will not pay for retrenchment or the like once the account is in arrears.

Also ensure that you furnish the credit provider with all the documents they require to process your claim.

Prioritise your debts

Your home loan, rent, vehicle repayments and utility bills are classed as priority debts.

Fail to pay these debts and you could lose your home or be evicted, have your electricity cut off, or have essential items (such as your car) repossessed.

List which debts have the highest interest rates, such as credit cards, unsecured loans and bank overdrafts and figure out how to pay these off as soon as possible as the interest rates are usually high.

Redo your budget

Get a clear idea of what’s coming in and what’s going out.

The amount that’s left after paying for your household bills, your living expenses, plus repayments and interest on anything you owe is what’s available to start paying off your debts more quickly.

Cut back on all luxuries and unnecessary spending.

Use your redundancy package wisely

You can also use redundancy pay or savings to pay off some of your debt.

Start with priority debts first. You’ll need to try and stretch this out for as long as possible, so avoid spending it as soon as you get it. 

While some consumers cannot repay debt due to loss of income, others continue to borrow as a quick fix.

According to Eunice Sibiya, head of consumer education at FNB, many people think that borrowing money to help them get through the first few months of the year will be a quick fix solution.

Taking out a loan or using credit cards to help cover short-term expenses can escalate into a big financial problem and may even result in being blacklisted if not managed properly,” she says.

As an example, she says if you R10 000 on a store card and the interest is 22 percent annually, you will be paying off R183 a month just in interest without making a dent in the actual loan.

“This money could be used to save for your children’s education, pay off your home loan quicker, or even treat yourself to something that month,” says Sibiya.

One of the major problems is that people stop paying for policies and long-term investments in order to service their debt, and this impacts their financial future. 

If you have already taken out a loan or maxed out your credit cards and store cards to get through the month, there are ways to take back control of your finances and enjoy a debt free 2013.

Firstly, she says one has to acknowledging the problem makes it easier to deal with and urges consumers to stop borrowing but focus on paying off existing debt.

Planning is essential and that means looking at what you spend and what you spend money on, Tips on taking control of your money could be a useful tool here.

Sibiya says if you find you are already indebted, it is time to make small changes to your budget , spend less on unnecessary items and if need be, approach your bank to find a solution such as negotiating a longer payment term .

“Banks are there to help and they will advise on the best way to manage your finances so you don’t have to stop paying towards savings and investments which are essential to your future,” she adds. – Denise Mhlanga

Email Print Share

Similar Articles

View all articles

Top Articles

View all articles
Top Articles
More property articles...

Newsletter

Get the latest property news in your inbox.
Select your options:

Your browser is out of date!

It looks like you are using an outdated version of Internet Explorer.

If you are using Internet Explorer 8 or higher, please verify that your Internet Explorer compatibility view settings are not enabled.

For the best browsing experience update to the latest Version of Internet Explorer or try out Google Chrome or Mozilla Firefox.


Please contact our Customer Service Centre for further assistance. Tel. +27 (0)861 111 724