DC DEBT CLEAR (PTY) LTD

Author: Cameron Nel

  • South African fixed and flexible debt Interest rates explained

    South African fixed and flexible debt Interest rates explained

    Not all debts are created equal in South Africa. It depends on the type of loan one is taking and the choice of interest rate: fixed or variable/flexible. Before incurring more debt, pay attention to payback terms and interest rates, as it can make all the difference in your budget and debt repayment plan.

    Most types of loans in South Africa provide both fixed interest rates and flexible rates linked to the country’s repo rate. This rate is determined by the South African Reserve Bank (SARB) and is currently still at a record low of 3.5% to stimulate the economy impacted by the ongoing pandemic threat.

    Variable interest rates and debt

    With a flexible interest rate, you can expect your monthly repayments to fluctuate from time to time.  Any sharp increase in the base rate will lead to higher accrued interest and more debt repayment over time, which may prove problematic for some borrowers, particularly when faced with tighter budgets.

    However, any substantial decrease in the interest rate, as with the decreed low repo rate following the financial downturn, will lower the monthly debt instalments. To keep the lower monthly repayments, borrowers may consider fixing their current loans, such as mortgage loans or vehicle finance, by switching from a variable to a fixed interest rate.

    Depending on the total duration of your loan and the moment of changing interest rates, this move may prove either advantageous or detrimental to your debt repayment schedule.

    According to economist Dawie Roodt, fixing interest rates is usually done for a limited period of up to three years, where the fixed rate remains unchanged for the loan duration.

    However, the new fixed rate is typically 1,5% to 3% higher than the initial flexible rate you are paying, which can prove counterproductive in certain circumstances. Read more here: https://businesstech.co.za/news/finance/406401/the-big-rates-quandary-south-africans-now-face-fix-or-dont-fix-dawie-roodt/

    Generally, it’s wise to move from a variable rate to a fixed interest loan when:

    • there is a significant expected increase in the variable interest rate, which leads to costlier monthly instalments. Choosing the fixed rate option at the opportune time may decrease these repayments.
    • your budget is tighter than it used to be, and you may benefit from a short-term fixed interest rate change, even if this is slightly higher than what you are paying now.

    Fixed interest rate loans

    Fixing the interest rate on loans protects the borrower from fluctuating interest during the loan’s lifetime. Therefore, fixed interest rates ensure that monthly repayments stay the same while paying off the loan.

    Loans provided at fixed rate interest range from low-interest home loans and vehicle finance to high-interest credit. A common type of unsecured debt suited for quick short-term expenses, personal loans typically have a fixed rate for the entire loan duration between one to five years, usually lower than credit card interest.

    Since added interest is already higher on unsecured loans and credit card debt, it may be a good idea to make these monthly repayments more predictable at a fixed interest rate, the lower, the better.

    Fixed-rate loans are a better choice than flexible loans if you work within a low or constrained budget, prefer a predictable repayment amount every month, or cannot afford any increases in interest or debt repayments.

    Debt consolidation interest rates

    Fixed repayments make it a safer, more predictable option for borrowers, ideal if you’re already juggling multiple unsecured debts or run into deep debt trouble. When you take a loan with fixed interest, you know exactly how much you repay monthly and how long you have until you pay off each loan.

    For this reason, interest rates for debt consolidation, which combines multiple debts into a single one, are negotiated at a fixed rate throughout the debt repayment schedule. A good debt consolidation interest rate is significantly lower than the interest rates taken on the initial loan, which is vital to decrease monthly repayments and avoid defaulting.

    Under debt counselling, it becomes easier to manage only one monthly instalment and its accrued interest instead of varying payments and interest levels. If you’re over-indebted and on a tight budget, you can also opt to spread out the loan, making even smaller payments over a longer time, although it will cost you more to finish it off.

    Our professional DC Debt Clear Debt Counsellor will help you stay on track with your debt repayments through a quick and affordable debt assessment process, if you are in need of greater help he will introduce you to the Debt Review Process. All of our debt counsellors are registered with the National Credit Regulator (NCR). Visit our page at www.dcdebtclear.co.za for more assistance.

  • Explained: Debt consolidation and interest rates

    Explained: Debt consolidation and interest rates

    Debt consolidation unifies multiple debt, typically high-interest unsecured debt such as credit cards, into a single manageable debt payment. You can use the process to re-organize debt, reduce monthly repayments, pay back a lesser amount, and get a better interest rate on your loan. Below we look at debt consolidation and interest rates options.

    Debt Review or a Debt Consolidation Loan?

    There are two ways to approach debt consolidation: either on your own by taking another loan to replace your existing debts, or having a debt counsellor renegotiate a consolidated debt loan on your behalf.

    Take a debt consolidation loan. Use the money from this new loan to pay off the existing debts in full, then pay back the remaining amount to the loan provider in monthly instalments. You have to negotiate the new loan terms and discuss a lower interest rate with the debt consolidation provider.

    The better your credit score and standing, the lower an interest rate you can expect. Hence, it may not be the ideal choice if your credit score is too low or you are over your head in debt.

    Choose debt review consolidation. Use this legal process to secure a reduction in interest rates or a loan extension, especially with high indebtedness levels.

    Your debt counsellor handles the debt consolidation process on your behalf and manages the repayments directly to all creditors. At the same time, you only need to pay back the debt counselling provider one affordable monthly instalment until the debt is paid off.

    When should you use debt consolidation?

    Debt consolidation can be an excellent option when you have difficulty in managing or paying off multiple debts every month:

    • You have multiple debts to pay every month and need to simplify your finances into a single manageable loan
    • You struggle to repay all your monthly loans or credit accounts on time, and you benefit from having only a single debt payment to worry about
    • You have little to no disposable income left after paying each debt on time, so you need to reduce the loan repayments to free up cash
    • You are defaulting on payments because your monthly instalments are too high, and you need to lower them asap by renegotiating a lower interest rate or extended loan terms

    As helpful as it sounds, debt consolidation is certainly not the cure for all your debt problems or uncontrollable spending habits. Depending on your financial circumstances, it may bring only negligible savings or relief to a deeper debt issue.

    If your debt is out-of-control, speak to a debt counsellor to assess the overall situation before jumping onto debt consolidation loans.

    Suppose you are severely over-indebted and your debt repayments exceed more than half of your income, or you are missing out on regular repayments. In that case, even a single debt consolidation loan may prove difficult to negotiate or manage on your own.

    Choose instead professional debt counselling help and debt review consolidation to get the maximum out of the renegotiated repayments and interest rates.

    How does it help to have one interest rate on your consolidation loan?

    With multiple credit lines, interest rates may vary considerably depending on credit type, risk profile and credit score. Debt consolidation removes the multiple interest problem through one fixed interest loan. You are charged a single interest rate on your debt consolidation loan, often a reduced rate compared to the original loan terms

    The interest rate for the debt consolidation will depend on the total loan amount, the monthly instalment that suits your budget, and the lowest interest rate you can qualify for, according to your credit record.

    What is considered a good debt consolidation loan interest rate?

    For example, you can have three credit cards with interest rates ranging from 20% to 24%. You could replace the three credit card debts with a debt consolidation loan at an 18% to 20% interest rate, pay off the initial credit and continue with the loan repayment at the new much lower rate. Debt interest consolidation loan rates can be as low as 15%.

    Generally, interest rates for debt consolidation loans tend to be higher, as with any high-risk loan, particularly if you have a history of defaulting and over-indebtedness. This means more accrued interest and an increase in the total payable debt amount.

    You may, however, negotiate a lower monthly payment and an extended loan term to replace multiple debts, which counts towards your ability to pay off the one debt without fault every month.

    In the case of debt review consolidation supervised by a debt counsellor, debt consolidation interest rates are reduced as renegotiated with credit providers to give the borrower the chance to pay off the debt.

    As a result, you decrease instalments and pay back less debt than the initial agreement via one lower monthly repayment. However, prepare to have your debt review on your credit record, which may be a small temporary price to pay for getting rid of your out-of-control debt.

    Our professional DC Debt Clear Debt Counsellor will help you stay on track with your debt repayments through a quick and affordable debt assessment process, if you are in need of greater help he will introduce you to the Debt Review Process. All of our debt counsellors are registered with the National Credit Regulator (NCR). Visit our page at www.dcdebtclear.co.za for more assistance.

  • What types of debt can be consolidated?

    What types of debt can be consolidated?

    Taking control over your debt gets easier once you understand the different types of debt and learn to prioritise paying them off. This blog explains various types of debt, the worst types of debt, and which debts can be consolidated when undergoing debt counselling.

    Different Types of Debt

    Debt can be categorised in several ways: based on loan duration (short-term vs long-term), interest rate (high-interest rate vs low-interest rate), loan purpose (consumer debt vs business debt) or the existence of collateral (secured debt vs unsecured debt).

    To make it simple, most debt people incur during their lives can be divided into these main categories:

    • Secured debt is any debt that requires assets as collateral. Creditors approve the loans backed by the purchased assets – vehicle or property – as collateral. The creditor can seize the assets if the borrower does not repay the loan. Examples of secured debt include mortgage, home loans, vehicle finance, and a secured credit line.
    • A mortgage or home loan is a common type of secured loan between lenders and borrowers, backed by real estate, land or personal property as collateral. It represents a large debt typically issued long-term (up to thirty years) at the lowest interest rate to make monthly repayments more affordable for the borrower. The real estate or land is serving as collateral in case of non-payment.
    • A vehicle finance or car loan is another type of secured debt. The vehicle is the asset that serves as collateral for the loan and can be seized and sold off if the loan is not repaid. Typically, vehicles are financed up to five years at a lower interest rate than other consumer debts, making repayments more manageable.
    • Unsecured debt does not require collateral and is granted solely based on the borrower’s creditworthiness and promise to repay the loan. Most consumer or retail debt, credit card debt and personal loans fit into this category. This types of unsecured debt represent a greater risk and cost to the lender. Therefore, it generally comes with a higher interest rate than secured debt, and it is considered one of the worst types of debt to incur.
    • Revolving debt is a type of credit where the consumer repeatedly borrows money to a maximum limit. The debtor can spend any amount until the credit limit is reached, which means debt repayments can vary according to the currently owed funds. The best example of revolving debt is a credit card or a credit line with a specific credit limit. This type of revolving debt is unsecured. Revolving debt can also be secured, for example, a secured line of credit with funds backed by collateral.

    The Worst debts to have are the following:

    Using the above classification, the worst types of debt are unsecured debt and revolving debt with no collateral to protect creditors, hence a higher interest rate for the borrower. Generally, consumer debt such as credit cards, retail stores and clothing accounts, and personal loans that finance such consumables are viewed as bad debt.

    What types of debt can be consolidated by a loan?

    Debt consolidation is the act of taking out a single loan to pay off multiple debts. The borrower can apply for either a secured or unsecured debt consolidation loan (with or without collateral).

    Debt counsellors recommend consolidating the worst types of debt such as multiple unsecured debts, e.g. credit cards, retail accounts or personal loans, into a single loan.

    Such debt consolidation loans generally have a longer loan duration than the initial credit agreements to make monthly instalments more affordable at a lower interest rate. It can reduce monthly repayments considerably.

    Debt consolidation is, therefore, a viable option when consumers cannot repay piling debts due to income loss, salary cuts, or they need to lower their monthly debt instalments to make it through the end of the month.

    However, debt consolidation is not without risk, including possible damage to the credit score and the improbability of securing a low-interest rate or collateral loss in taking a secured consolidation loan.

    It is best to rely on specialised help when applying for debt consolidation. Debt Counsellors can devise a new debt repayment plan and renegotiate original loan terms with creditors, banks and financial institutions to ensure it benefits the borrower after the initial debt assessment.

    Our professional DC Debt Clear Debt Counsellor will help you stay on track with your debt repayments through a quick and affordable debt assessment process, if you are in need of greater help he will introduce you to the Debt Review Process. All of our debt counsellors are registered with the National Credit Regulator (NCR). Visit our page at www.dcdebtclear.co.za for more assistance.

  • What is a debt to savings ratio?

    Various money ratios indicate if your debt is at a manageable level or not. These calculations may be employed by financial institutions to determine your creditworthiness but are generally helpful to understand your finances, reduce debt and improve budgeting.

    Lenders measure your level of debt to determine your creditworthiness by calculating a debt-to-income ratio or DTI, meaning the portion of your total debt relative to your monthly income. The lower the debt, the better chance you stand to receive more credit on your next loan application.

    Similarly, a savings-to-income ratio looks at the portion of your savings compared to your monthly income. In this case, a lower rate means that you are less likely to put money away while debt takes over a more considerable portion of your income.

    A savings debt ratio is another way to show whether you’re likely to have money left over for saving after spending and servicing debt. This ratio puts into perspective saving versus credit and your ability to save money over debt-funded regular expenditure.

    Consumer debt vs saving explained

    The South African credit bureaus offer bleak statistics concerning the country’s average household debt-to-income ratio and overall savings. Before the pandemic, TransUnion data showed a high DTI of around 72% in 2019, which meant South Africans spend nearly three-quarters of their income on debt.

    On top of it all, the low 3% overall savings rate told that South Africans prioritise spending and debt over saving for the future.

    However, the pandemic may have altered these habits. According to bloomberg.com, the household debt fell for the first time in almost two decades in the second quarter of 2020 following pandemic restrictions, which affected consumer spending and savings.

    Still, the household debt to disposable income ratio jumped to 85% in the second quarter of 2020 from 73% in the first quarter of the same year. While consumer debt may decrease overall, South Africans are still battling with higher than usual debt ratios.

    Currently at the start of 2023 the increase in the interest rates across the world have lead once again to the increase of overall consumer debt and South Africa still stands to have one of the highest debt to savings ratios in the world.

    Paying off debt vs saving what is the difference?

    Accessing credit is completely normal to fund those essential purchases, e.g. a home or a vehicle, but incurring too much debt comes at the expense of a savings plan. This is why you need to be in control of your debt and learn to make sound financial decisions, such as reducing debt so you can increase your disposable income and start saving.

    Looking at your credit report and enquiring about your credit score gives you a complete picture of the various loans and credit facilities taken to date and how well you manage them. Consider this your debt portfolio. From here, finding your debt-to-income (DTI) ratio determines your level of indebtedness and, subsequently, the opportunity or savings.

    • Less than 35%: Your debt is manageable, and there is an opportunity for savings. Creditors view a lower DTI as favourable.
    • Between 35% and 50%: You need to be careful about credit and manage your growing debt—less opportunity for savings.
    • More than 50%: You may be heading to a dangerous level of debt and over-indebtedness—a low chance of saving money.

    Balancing your savings versus debt portfolio improves your savings debt ratio. For example, if you lower your DTI to an acceptable level – 30%, and your monthly expenses sum up to 50% of your income, the resulting 20% disposable income can be used towards savings or paying off your debt faster.

    Suppose your savings debt ratio is low or non-existent. In that case, it may be because you are over-indebted and cannot entertain the possibility of savings when you barely handle so many debt repayments. Pay off these outstanding debts first before focusing on savings. You may need debt counselling if you’re seriously drowning in debt.

    Debt consolidation and Money Saving

    Debt consolidation or debt review is a formal process open to indebted consumers who struggle with multiple debt repayments. Taking this step towards paying off debt helps you secure more affordable loan terms with creditors and consolidate significant repayments into one easily payable debt. It also ensures you can free up some money from your income to use for other purposes than servicing debt.

    Generally, a debt counsellor will develop a new budgeting plan, rethinking spending habits to reduce your debt-to-income. Consequently, reducing debt contributes to a higher disposable income and a lower debt-to-savings ratio.

    Therefore, your debt counsellor can both act as a debt adviser and money-saving expert. By getting debt help through debt counselling, you enjoy the benefits of freeing up cash so you can start saving money and improve your financial future.

    Our professional DC Debt Clear Debt Counsellor will help you stay on track with your debt repayments through a quick and affordable debt assessment process, if you are in need of greater help he will introduce you to the Debt Review Process. All of our debt counsellors are registered with the National Credit Regulator (NCR). Visit our page at www.dcdebtclear.co.za for more assistance.

  • Signs You Can’t Pay Current Debt and Need Debt Counselling

    Signs You Can’t Pay Current Debt and Need Debt Counselling

    Are you unable or unwilling to pay your debt? Here’s how to tell if you have taken too much credit on your plate and whether you can afford it under the current repayment plan.

    You regularly miss monthly repayments

    When you take a loan to finance a purchase, the creditor grants the loan under an initial repayment plan that specifies the total amount payable with accrued interest. By accepting the loan, you commit to a monthly repayment plan until you pay off the credit amount.

    The first sign you may be in trouble and unable to pay this debt is to forfeit or delay the monthly payment, hoping you’ll get back on track next month. Worse, you could miss several consecutive repayments, in which case the creditors are likely to take judgment against you (usually after three missed payments).

    Bear in mind that forfeiting monthly debt repayments harms your credit record and lowers your credit score. It affects your ability to apply for future credit and receive approval from lenders and financial institutions. Remember: Small or reduced payments are better than no payments at all!

    What can you do: The solution is to reinstate the payments as soon as possible. Don’t delay or ignore the situation until creditors take legal action and you stand to lose assets. Talk to a debt counsellor who can negotiate a more affordable monthly repayment plan with your creditors so you can resume payments immediately.

    If the debt repayments are too high

    Are you struggling to pay multiple credit cards, personal loans and other consumer debt? It may be that your monthly repayments are unreasonably high. When you have several credit lines open, monthly repayments pile on, making it more challenging to service all debts every month without fail.

    A simple way to determine whether your total debt repayments are unmanageable in the current loan conditions is to look at your credit record and calculate your total repayments and debt-to-income ratio.

    A high debt-to-income ratio means that your net income (salary after tax) barely covers the repayment amount, and you need to reduce debt asap. If the rate is unusually high, e.g. you spend over 70% of your income on servicing debt (over-indebtedness), you can seriously benefit from professional debt counselling.

    What can you do: Since paying some debt and not others is not a viable option (see above why you should not miss or delay repayments), the answer is to lower the total repayments wherever possible by negotiating a better interest rate or a loan contract extension. Debt counselling provides you with a renegotiated repayment plan to reduce the initial payable amount by up to 50% in some cases.

    You desperately need more money to service your debt

    Over-indebted consumers find it extremely difficult to make ends meet when creditors take a large chunk of their income first. Unsurprisingly, you may find that you always need extra cash to cover additional repayments and offload the burden. Still, you have little to no cash reserves or disposable income to do it properly.

    As seen above, a high debt-to-income ratio shows the extent of your indebtedness. It is also worth considering consumer debt vs disposable income and your savings vs debt portfolio. The savings debt ratio indicates where your priorities lie. The more cash available in your budget, the more it can be directed to pay off debts faster or towards savings.

    If you’re low on cash and contemplating yet another loan to fund your next purchase or pay off existing debt, it is highly probable that you barely afford to manage debt. You are overextending yourself, and the only way out is to decrease the existing debt and keep it at an adequate level, benefiting from freeing up cash to be used elsewhere.

    what can you do: When your salary is not enough to service debt, or your current monthly debt repayments take most of your income, rather rethink your budget and devise a step-by-step plan to cut down on debt to release money. You’ll get faster and better results with budgeting and affordable debt repayment planning through expert debt consolidation.

    Our professional DC Debt Clear Debt Counsellor will help you stay on track with your debt repayments through a quick and affordable debt assessment process, if you are in need of greater help he will introduce you to the Debt Review Process. All of our debt counsellors are registered with the National Credit Regulator (NCR). Visit our page at www.dcdebtclear.co.za for more assistance.

  • How do I become eligible for debt? Understanding your Credit Report

    How do I become eligible for debt? Understanding your Credit Report

    Being debt eligible means that you satisfy all the conditions to obtain debt and receive credit from banks or financial institutions. Here’s how to find out if you are debt eligible and whether you qualify for credit, what to do if you don’t know know where to get a credit report simply follow this link, to get your Credit Report.

    What is a Credit Check?

    Whenever you apply for credit from a bank or financial services provider, the creditor will run an ITC Credit Check as part of your application process. This ITC Credit Check will access your credit records from one of South Africa’s credit bureaus: TransUnion, Experian, Compuscan or XDS.

    These records contain your complete credit profile, including previous credit applications and the amount of debt incurred to date. Credit providers use your credit status to determine whether you qualify for the credit you need (whether you are debt eligible). Furthermore, a good credit status can help you secure a higher credit limit or lower interest rates to your advantage.

    When the credit bureau calculates the credit score (0 to 999) based on these records, the bank or financial institution will know whether you can afford any more debt (high score) or are too indebted or struggling with current repayments (low score). In the latter, the creditor will likely not grant a further loan application until the borrower reduces or eliminates existing debt to an acceptable level.

    Interestingly, a credit check in South Africa became synonymous with an ITC check, a process named after the country’s leading credit bureau for many years, ITC Credit, now TransUnion. Similarly, a credit record is referred to as an ITC record. Nowadays, it simply means a credit check or credit record, irrespective of the affiliated credit bureau.

    How do I find my Credit Report or do a Credit Check?

    There are various instruments to verify your credit record. For example, you can easily request a credit check or ITC Credit Check online to find your credit status, and most financial providers will offer such a service for a nominal fee.

    However, the TransUnion credit bureau found that fewer than 5% of South African consumers use the legislation that entitles them to obtain a free credit report every year from every credit bureau in the country. This opportunity to verify and understand your credit report proves useful before you decide to apply for another loan.

    The credit report gives a good indication of your current debt eligibility and the chances of getting another loan application approved. Sadly, most consumers access this info when it is too late after receiving rejected applications for home loans or vehicle finance.

    Be careful not to abuse the ITC Credit Check feature. The number of frequent credit checks is an indication of new credit enquiries and applications. Applying too often for a loan may be interpreted as a financial struggle. Limiting how often you apply for new credit shows good financial management, and it improves your credit record and, subsequently, credit score.

    How do I improve my credit record and become more credit worthy?

    Improving your credit record is essential to become debt eligible at your next credit check and maximise the chances to have your next loan approved. Here are some things to keep in mind:

    • Build your credit record. Showing that you can manage debt well and repay a credit line, for example, a credit card or retail account is a positive thing in your credit check. It also improves your credit score.
    • Check your ITC Credit Check report for errors and negative info. Always ensure the credit report is free of inconsistencies. Sometimes, updating your profile can mean the difference between being debt eligible and not qualifying for a loan.
    • Get paid debts cleared from the credit report. Once you have paid a debt in full, the creditor must inform the credit bureau, which is then entitled to remove or clear the debt from your credit record. Similarly, if you had court judgments in the past and you paid off the debt, the credit bureau should receive either proof of payment from the credit provider or a valid court order rescinding the judgment. Ensure this debt is cleared before applying for new credit.
    • Keep up with the repayments. Missing payments or paying later than usual will negatively reflect your credit history via the credit check. Maintain your credit record pristine by repaying debts in full and on time.
    • Pay off outstanding debts. Regularly catch up with past-due accounts to reduce current debt as fast as possible and make room for loan applications that require a high credit score for approval, e.g. property loans. Start with paying off high-interest rate unsecured debt: credit cards, personal and consumer loans. Close any outdated accounts that you are not using anymore.
    • Reduce your credit ratio. This ratio refers to the percentage of the amount you still owe to creditors from the total available credit limit on a specific account, a credit card, for example. If this percentage is low, you are doing an excellent job in repaying the debt. If the rate is unusually high, you are sinking in debt faster than you can repay it.
    • Reduce high indebtedness via a debt review or debt counselling process. You have to be over-indebted, unable to afford to service your debt or struggle to make the monthly repayments. A debt counsellor will look at your current income, expenses and debt to determine the best course of action and draw up a new budget so you can manage to pay off the debt.

    DC Debt Clear Debt counsellors can negotiate with creditors on your behalf to accept a new payment plan with a reduced monthly repayment that you can afford.

    Our professional DC Debt Clear Debt Counsellor will help you stay on track with your debt repayments through a quick and affordable debt assessment process, if you are in need of greater help he will introduce you to the Debt Review Process. All of our debt counsellors are registered with the National Credit Regulator (NCR). Visit our page at www.dcdebtclear.co.za for more assistance.