Credit Amnesty – What does it mean for you?
The credit information amnesty implemented on 1 April 2014, has left many South African consumers confused about what the credit amnesty means for them.
You notice most of your salary is going towards your debt repayments each month, you cannot afford to put money towards a savings account, you purchase your groceries with your credit card, and your credit applications are being rejected. These are all signs you’re carrying too much debt.
But how much is too much?
A method that is used to calculate the load of debt you have is the debt-to-income (DTI) ratio. This method is often used by banks when assessing your affordability when you apply for a loan.
DTI refers to the portion of your income that goes towards paying your debt. A low DTI ratio shows a good balance between debt and income.
To calculate this, add all of your various monthly debt repayment instalments together and divide them by your gross income – that is your income before any deductions such as taxes, insurance, and medical aid. Your debt repayments include your personal loans, mortgages, car finance, credit cards and student loans.
If the bank finds that more than 43% of your income is spent on covering your debt, you are not likely to get the loan. However, if it’s lower than 36%, your loan application will be approved, given that you meet other requirements.
A lower DTI demonstrates that you will be able to meet your monthly repayments.
Ways to reduce your debt
DebtBusters can help you restructure your debt repayments, making it easier for you to repay your loans. Contact our friendly consultants on 086 999 0606 or email to info@debtbusters.co.za