Help for South Africans who can’t pay their debt

COVID-19 and the lockdown have had a serious financial impact on South Africans. If you are struggling to pay your debts, it’s good to know that creditors are often willing to help you find solutions. We spoke to Neil Roets, CEO of Debt Rescue, to find out about the options available, including debt counselling and a range of COVID-19 relief options.

You are not alone

Not being able to pay debts is stressful, but very common. Neil says South Africans were struggling financially because of the difficult economic conditions before COVID-19, and the current situation has made it worse.

When you are in financial difficulty you need to take a few steps to make sure you find a way out of financial difficulty, and importantly, don’t get into more financial trouble.

Step 1: Work out your income, expenses and debt repayments

Neil says the best way to do this is to do a budget, or in these times, two budgets. These would be your budget you would have in normal times, and a second one, updated to show the effects of the lockdown on your income and expenses. Although many sectors in South Africa are returning to work and lockdown regulations are easing, spending patterns have changed. And some sectors including tourism, personal care and hospitality remain closed, which might affect your income.

Your budgets will show your income, and any changes, and your expenses and how these have changed.

Next, make a complete list of all the creditors you owe money to, with details of how much is owed in total and the instalment or repayment amount. Together with your updated budget, this will give you a comprehensive view of your income and expenses and show whether or not you can pay your debts each month.

Step 2: Find ways to save

When you have done your budget, see if there is anywhere you can save money or reduce expenses. You can also look for ways to increase your income, although the lockdown regulations can limit your options. Most of us have done this exercise already, but it’s worth taking another look, particularly if you are struggling to pay your debts.

Step 3: Speak to your creditors

If your budget shows you cannot pay your debts, and you have saved all you can, you need to let your creditors know you are in difficulty. It’s very important to communicate with your creditors and find out what your options are. Your creditors include your bank or credit card company, the company you have vehicle finance with, stores and retailers where you have accounts and personal loan providers.

Creditors have various options for those struggling to pay on time, including payment holidays and restructuring your debts. You may also be able to settle some or all of your debts using a credit life policy. We discuss these three options below.

Payment holidays
Many banks and other creditors offered people whose income was affected by COVID-19 what they call payment holidays, which is where a payment can be missed for a period of time. South Africa’s major banks announced payment holidays for three months from 1 April to 30 June 2020 for qualifying customers whose income was affected by COVID-19. During this time, customers would not have to make their regular debt payments.

In most cases, payment holidays don’t mean interest and fees are suspended, so you may still have to pay these or they will be added to the amounts you owe. And a payment holiday doesn’t mean you miss the payment altogether. You still owe the money and at some stage you will have to make it up.

If you have no income, a payment holiday is welcome relief. However, Neil says a payment holiday should be approached with caution, and the terms and conditions checked very carefully.

“The impact of the interest on payment holidays can have an effect for much longer than the period of the holiday,” Neil says. A one-month holiday could mean the term of your loan repayment extends by up to three months, depending on various factors.  You could end up paying more, over a longer period of time.

Restructure your loan
A loan can be restructured in one of two ways. Either the term of the loan is extended, which should reduce the monthly repayments, or the repayments are restructured so you pay less now, and more later. Banks and other credit providers are often willing to look at restructuring, but each case is assessed individually, so you need to ask your credit provider or bank what options they offer.

Use your credit life policy
If you have lost your income or your job you may be able to use a credit life policy to pay your debt. You can ask your creditor for details on this.

More options
Your bank or credit provider may also have other programmes available they haven’t made public, so always ask what your options are. New programmes may be available in the coming months, so stay in touch with your creditors.

We spoke to Absa and Nedbank about further measures to help those whose income is affected by COVID-19.

Ewald Kellerman, chief risk officer, home loans, at Absa Retail and Business Bank SA, told us Absa plans to reach out to customers so they can determine each person’s individual circumstances so they can offer an appropriate relief option.

Anton De Wet, Nedbank retail and business banking chief client officer, says Nedbank will review the measures already in place and look at their impact to decide how best to move forward. “We encourage clients to proactively contact us to discuss their individual circumstances and financial position as it evolves,” he says.

Did you know? Over 2 million customers have made use of relief options offered by banks since the start of lockdown, according to the Banking Association of South Africa

Step 4: Consider debt review if your situation is serious

When you enter debt review –  also known as debt counselling – a debt counsellor negotiates with your creditors to accept a lower monthly payment, which means you can pay your debts and still have money to live on. You have to repay your debts in full, but you are reassured because your creditors will not contact you to pay the amounts or try to get court orders or judgements against you.

However, one of the requirements for going into debt review is that you need to have an income, because you need to repay your debts. With many of us having our income reduced, or in some cases lost completely, how does this affect debt review?

Neil says Debt Rescue’s recommendation is to contact a debt counsellor to look at your particular circumstances to assess what options are available and what would be the best solution going forward. He says each individual’s circumstances are unique, therefore each solution will be different.

If you need help or advice with managing your debt, 1Life’s Truth About Money offers telephonic debt counselling and debt consolidation at no charge to successful applicants.

Final thoughts

Neil says we should have a clear approach to our future and finances and avoid more debt. “Do that budget and take stock of what is truly going on in your finances, and if necessary, seek help from a professional, in the form of a debt counsellor, to find a solution.”

Banks and other credit providers are very aware of the impact on incomes in the various lockdown levels and are keen to find solutions to help customers cope. Speak to your bank, let them know your own financial circumstances and ask what solutions you can come up with together.

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