While debt often carries a negative connotation, it’s nearly impossible to navigate life without some form of debt these days. From home loans to financing furniture and other expensive items, debt can be a powerful tool, enabling us to improve our living circumstances – purchasing a home, funding our education, or even starting a business. However, this powerful tool can quickly become a burden if not managed responsibly, leading to anxiety, damaged credit scores, the loss of hard-earned possessions, and even hindering our career prospects, as employers often check credit histories.

“But even when debt feels overwhelming, you can take control and reduce it with the right strategy,” emphasises Bheki Dlamini, a financial coach with Life Assist.

The first step, he explains, is to gain a clear understanding of your current debt situation. Create a comprehensive list of all your outstanding debts, noting the interest rates and repayment schedules for each. Next, develop a detailed budget that outlines both your income and expenses. This will help you identify potential areas where you can cut back on spending to allocate more funds towards debt repayment. If necessary, explore available debt relief measures to find the most effective path to financial freedom.

Why debt management matters

  • It helps you to maintain a good credit score. Timely payments and responsible borrowing are crucial for securing other loans at favourable interest rates in future. Every time you borrow money or take out a loan from a registered credit provider like a bank or another financial institution, the information is collected by a credit bureau. This includes information such as the names of the institutions you are borrowing money from, payment history, and credit utilisation, and it is readily available to credit providers whenever you apply for a loan.

“A bad credit score can also impact your ability to get certain jobs as some employers may conduct credit checks, especially for positions that involve handling finances,” Dlamini stresses.

  • Avoiding financial stress: Unmanageable debt can lead to anxiety, damage your credit score, and hinder your ability to afford necessities.
  • Financial planning: Debt management allows you to budget effectively and plan for your future financial goals.

Warning signs that you are in debt trouble

  • You struggle to make minimum payments: Falling behind on minimum payments is a red flag that you are borrowing more than you can afford, making it extremely difficult to catch up without significant adjustments, such as increasing income or drastically reducing expenses.
  • Maxing out credit cards: Reaching the credit limit on your credit card or increasing the limit regularly indicates that you might be in trouble.
  • Using debt to cover basic expenses: Relying on credit cards, store cards, or short-term loans from micro-lenders and or loan sharks to cover essential expenses like groceries and petrol is a strong indicator that you may need financial assistance.
  • Frequent creditor calls: Persistent calls from creditors demanding repayment indicate it’s time to acknowledge your financial struggles and take action.

Taking control of your debt

  • Track your spending: Understanding where your money goes is the first step to getting you out of rising debt.
  • Communicate with your creditors: If you’re facing difficulty making payments, speak to your creditors, advises Dlamini. Open and honest communication is crucial. You may find them willing to negotiate a more manageable payment plan. Most creditors understand that unforeseen circumstances can arise, and they would generally prefer to work with you to find a solution. This is often more beneficial for them than resorting to costly legal measures, which may not guarantee full recovery of the debt.
  • Consider debt counselling or debt consolidation: A debt counsellor can be invaluable in regaining control of your finances. They can negotiate with creditors on your behalf, identify the most suitable debt relief options, provide guidance on improving your financial management, and prevent potential legal action. Debt consolidation can simplify debt management by combining multiple debts into a single loan.

How does debt counselling work

Debt counselling is regulated by the National Credit Act (NCA) and is designed to protect consumers from unscrupulous credit providers. However, you will only be considered for debt counselling when employed and over-indebted. Individuals who are proven to be able to repay their debts but choose not to are not eligible for debt counselling services, Dlamini stresses.

You can contact a debt counsellor through the LifeAssist National Support Centre and or the National Debt Counsellors Association (NDCA) website: https://www.ndca.org.za/

The debt counsellor will assess your financial situation: They will look at your income, expenses, and debts to see if you are over-indebted. If you are over-indebted, they will negotiate with your creditors on your behalf: They will try to get your creditors to lower your interest rates and monthly payments. You will make a single monthly payment to the debt counsellor VIA Payment Distribution Agencies (PDA): The PDA will then distribute the money to your creditors.

Debt counselling is not free, but it is a lot cheaper than most other avenues. Benefits of debt counselling include that it can help you to manage to pay reduce instalments over extended period, save money on interest charges, improve your credit score, manage your finances and protect you against legal action and attachments from creditors if you apply before summons are served.

What is debt consolidation?

Debt consolidation involves combining multiple debts, such as credit cards, store accounts, and personal loans, into a single loan. Typically, this consolidated loan offers a longer repayment term, resulting in lower monthly instalments. This strategy can be beneficial for individuals struggling to meet minimum payments on multiple debts, providing some financial breathing room. However, to qualify for a debt consolidation loan often requires a good credit score.

Avoid debt traps

Beware of loan sharks:  Loan sharks prey on individuals desperate for quick cash, often those already burdened by debt. They often operate outside the law, charging exorbitant interest rates and resorting to illegal tactics like confiscating IDs and bank cards to force you to repay your debt. These practices can trap borrowers in a cycle of debt, leading to financial ruin.

“It’s crucial to always verify that a lender is registered with the National Credit Regulator and to exhaust all other options, such as negotiating with existing creditors or seeking guidance from financial institutions, before resorting to loan sharks. While borrowing can be necessary, responsible debt management involves understanding the terms of the loan, comparing interest rates, and prioritising repayment to avoid falling into a debt trap,” warns Dlamini.

Live within your means: This involves creating a realistic budget that accounts for all your income and expenses and sticking to it. Avoid unnecessary expenses like impulse purchases and resist the urge to keep up with the Joneses by buying expensive items like flashy cars simply to impress others.

Reserve debt for essential purchases only: Ideally, debt should be reserved for significant, essential investments like a house or a reliable vehicle that are necessary for work or family needs. Before incurring any debt, thoroughly research and understand the terms of the loan agreement, including the interest rate, repayment period, and any associated fees. This knowledge empowers you to make informed decisions and avoid falling into a cycle of debt.

Remember, you don’t have to struggle alone. If you want to connect with a financial coach or counsellor, don’t hesitate to reach out to LifeAssist for assistance.