It is frightening how quickly you can move from being in control of your finances to desperately grasping for a financial life raft. On reflection, many of our clients realise that they could have prevented their financial stress if they had seen the tell-tale signs indicating that they were on a slippery slope towards financial […]
27 November 2012
Please tell us what exactly is a debt counselor? It’s not like people talk about seeing a debt counselor everyday.
A debt counselor will be registered with the National Credit Regulator (NCR) and will have done the necessary qualifications and exams. Their role is to help over-indebted consumers to get back on track by rearranging their debts with the creditors and getting agreement and helping them develop a liveable budget.
Debt is still a taboo subject but it is getting better, due to the fact over 11.5m consumers have debt problems, so it is a stress that the majority of families are having to deal with.
Why do People Chose Debt?
• Often you need debt to generate wealth or for a place to live – homeloans, vehicle finance, business loans and these can be seem as good debt, as long as you have thought it out and understood the costs and risks involved – always negotiate!
• Unfortunately most of the time it is due to wanting a product now, rather than saving up, or due to a loss of income in the household. The key is for household to get into the habit of doing income and expenditures on a regular basis.
Can you share some statistics with us? Are South African’s bad with debt? If so, where are our shortfalls?
• Over 60% of the 19 million credit active consumers are in arrears, roughly double the number of income tax payers in South Africa
• Yes using debt has become a national pastime and it seems people do not understand the effect this will have on their lives for the years to come.
• Other factor is that costs are going up – for example, food inflation is expected to increase by over 10%, fuel has increased by over 20% in last quarter, electricity set for massive increase and these then have an effect on other goods you will buy such as clothes, transport, schooling. This is squeezing many households in the country and we as a country are not good at revisiting our budget and realigning it, hence taking out more debt.
Given the fact that the economic situation has been erratic since 2008, what has happened over the past 4 years that has affected the debt situation in general?
• There have been a number of critical factors, such as developed nations not having the same amount of money to invest into places such as South Africa, which in turn affects the job markets. As we all know we have a huge unemployment issue and the credit crunch has had an effect on small businesses with many going out of business, due to lack of funding and the economic downturn. SME’s are critical to the development of wealth to any country and we are failing in helping these businesses.
• Households have often lost a slice of income from a period of unemployment, reduced commissions and overtime, which then means the household will not be able to pay for all their needs, hence the use of debt.
What do South African’s waste their money on? What are our worst spending habits?
• Mainly consumerables and some of these can be at very high interest rates, meaning you are paying much more for the product than it is worth.
• Too many of us get sold into buying a more expensive flashy vehicle than our needs require and often consumer are sold into buying with a residual value. Before shopping for a car, look at what you need it for and then allocate a maximum amount and do not budget from this amount (also get a pre-authorisation from a bank telling you how much it will cost and at what interest rate).
If we assume you have a vehicle for 40 years of your life and my sticking to your guns you may save R500-1000 per month, which if put in an investment at 9% growth would turn into R2m or R4m.
Being in a situation where you start the year with more debt than usual, where does one begin? What is the first step to reducing my debt?
• 2 Areas to look at which are your income and expenditure excluding your debt and how it can be reduced, and how much is left over at the end of the month. Second is to put a table together of all your debts (including your partners) outlining what the balance is, the interest rate which is very important and who the debt is with and finally the total debt payment.
• Areas to reduce your expenses
o Satellite TV & internet packages
o Insurances & bank accounts
o Transport – sharing lifts
Can you give us some general tips for avoiding debt this year? Do you have any specific examples?
Give us some dos and don’ts!
• Sit down with your family and this includes your kids (critical lesson for them in life and the value of money). Explain what is happening and what the income coming in is and what is currently going out. Use your bank statements.
• Outline what your expenses are to be for 2012 and work out a budget. Remember to put in savings, contingencies and pensions as these are critical for your retirement or when times are tight.
• If taking out debt check the small print and make sure you understand the interest rate you are paying, the other charges you are paying and how much you will pay in total. Ask yourself ‘is it worth it’ and always negotiate!
• There are many packages available on the internet to help you budget and it is key that the budget is revisited regularly, as this is the only way to get better.
How do you help people who are in debt? What is it that you teach them?
• We help our clients with a new budget explaining how long it will take to get out of debt and how this process can be speeded up. In addition we have a financial support dept to assist clients who have changes or want to ask question such as ‘what shall I do with my budget?’.
• Lastly we will send monthly newsletters giving tips on budgeting and how more can be saved.
Should you have any further questions please do not hesitate to contact DebtBusters on 0869 99 06 06 or visit our website www.debtbusters.co.za.