South Africans should avoid living beyond their means by keeping a close eye on the amount of debt they take on. Overindebtness can result in legal action and bad credit record due to non-payment.
According to Stats SA, In 2022 alone, South African consumers owed a cumulative R 2.8 billion which they failed to honour.
This amount was mainly for failing to make payments on goods bought on credit – these could be clothing accounts or bigger credit agreements such as car repayments and personal loans. The net effect of being overly indebted is the financial stress on individuals and their families, says John Manyike, Head of Financial Education at Old Mutual.
“The reality is that debt cannot be wished away, you may ignore it but until you realise that it requires a change in behavior your financial situation may worsen. You may not have legal action taken for non-payment , but that does not mean it’s less serious, You don’t have to wait for it to result in an adverse credit record to take action because it might be too late,” adds Manyike.
Truth be told, our desires and poor lifestyle choices are the chief driving force behind high levels of indebtedness. It can either be a result of buying the wrong car, picking a wrong school for children or an expensive house – simply put, it’s living beyond one’s means. Just because one qualifies for credit doesn’t mean you can afford it. To make matters worse, when life is good, we often ignore having an emergency savings plan or multiple streams of income as we only rely on a single salary. When divorce comes or a jobloss or death of a breadwinner our lives cannot handle a financial shock.
“Effective credit management has simple rules that we all somehow manage to break at some point in our lives. The rules are to pay on time, reduce what you owe, pay off debt and avoid using revolving credit (credit cards),” says Manyike.
“Most important rule is to change behavior when you find that you can’t cope financially.”
To avoid legal action or come out of the sliding slope of spiraling debt we must take action and do so decisively.
- Learn to Budget – and discipline yourself to live within your means. Tame your desires and do not entertain an imaginary crowd.
- Start an emergency savings fund – save up to at least 3 to 6 months of your monthly salary to deal with unplanned emergency expenses.
- Speak to your financial advisor – to help you craft a financial plan. Make sure you ask your advisor about a life cover, disability cover and long-term investments.
- Downsize your house or car if need be.
- Talk to your creditors – proactively as soon as you start struggling with installment to negotiate payment terms.
- Explore Multiple streams of income. Side hustles are a way to go.
If consolidating debt can’t help, you should explore debt counselling , which involves legal procedures that protect you and assure your creditors that they will be paid but pick a debt counselor registered with the national credit regulator as there may be unscrupulous debt counselors who prey on unsuspecting people.
“Speed is vital if you have to take this step. If summonses or judgments are made against you before you enter debt counselling, you must settle these matters as they may not be included in any formal debt review process. In extreme cases, this could mean losing your home and other assets.”
“Don’t gamble with your family by introducing them to a life you cannot afford, be realistic and be prudent when it comes to credit consumption. Wise people use credit to create wealth and not to enslave themselves,” says Manyike.