27 Oct From the over-indebtedness hole to a crack at successful retirement
Salt EB’s Business Development Head Wimpie Vermaak believes that one way to encourage South Africans to save and be more confident about retiring is to help them out of over-indebtedness.
How serious is over-indebtedness in South Africa?
We’ve highlighted just four indicators from DebtBusters’, South Africa’s largest debt management company, Q1 2023 Debt Index which illustrates the extent of over-indebtedness.
- Consumers need 65% of their take-home pay to ser vice debt.
- People are taking home 38% less in real terms than they did 7 years ago.
- Demand for debt counselling grew by 40% compared to the same period in 2022, while there was a massive 92% increase in subscribers to Debtbusters online debt management tools.
- Ninety six percent of people who applied for debt counselling had a personal loan, indicating that many consumers are using unsecured credit as a lifeline.
The imperfect storm.
In the same report, head of DebtBusters Benay Sager envisaged the continuation of the trend for the rest of the year as the full impact of successive interest-rate increases and elevated levels of inflation are now embedded in consumer finances.
“We live in an age of instant gratification and personal loans are readily available. The attraction of easy cash ignores the inevitability of rising interest rate cycles. With this, financing discretionary items soon leads to financing life’s everyday necessities. This vicious circle is never sustainable and over-indebted consumers are left with little means to live let alone save towards a fruitful retirement. An answer, challenging as it may be, is to get out of debt, learn from the experience and reset your priorities”, says Wimpie Vermaak.
What are some options?
There are several ways to manage over-indebtedness, one being debt consolidation. A weakness of this solution is that while the consumer has the convenience of a consolidated loan, the interest rates are generally very high. This means that consumer can still struggle to f ind enough cash to live on. Accessing funds from your home loan has some at traction but you’ll be paying a lot more to service the home loan now than two years ago, so an already strained personal cash f low is stretched thin. And, given that the homeowner is already in financial distress, the bank may be reluctant to increase their risk. Debt counselling (or debt review) is another option with several benefits. The debt counsellor constructs a budget for the debtor, negotiates with each credit provider for significantly reduced interest rates which allow the consumer to pay creditors while having enough cash to live on. Typically, the payment plan is structured over five years or so. During that period the indebted person may not take further loans, which opens a path out of the debt trap.
Find the right partner and purpose.
“Whichever option you pursue, partner with an accredited and professional service provider. In the debt management field, this means NCR (National Credit Regulator) accreditation. Importantly, the solution must include significantly reduced interest rates so that you can sustain payments without having to borrow further to subsidise living expenses. And last, once you are free of debt use a good chunk of the newly available cash f low to save for retirement”.
The views expressed are those of the contributor and neither the contributor or Salt EB is responsible in any way for the use of the information. The intent of the article is for readers to explore ways to exit over-indebtedness in order to improve their qualit y of life, and make provision for retirement savings. Readers are encouraged to explore options most suited to their individual circumstances with credible industry service providers.