Category: Credit Savvy

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.

The S&P downgrade of SA’s foreign currency debt to junk status has been all over the news of late and a talking point for many South Africans. It’s media hype my die down eventually but its actual effects will have a longer stay. It will undoubtedly the economy on a large scale and affect consumers, businesses and government expenditure.

The extent of junk status on South African

According to Jacobus Eksteen, the senior data analyst at credit bureau Compuscan.

“Companies, especially parastatals, will be seen as having higher implied risk. Therefore, it will be more difficult to issue debt in the sense that there will be less demand and the demand will be at higher interest rates.”

“Institutions buying the debt will also know that they will have to take on more risk, which makes the higher interest rates less attractive.”

He said it is ultimately a negative sum game for South Africa, as “someone” loses.

“Companies will most likely need to pay more to service debt, thus reducing their profit and potentially increasing pressure on consumers by offering lower value for money to try to compensate,” said Eksteen.

“Further, economic growth stems from consumers’ ability to spend and with this being impacted the economy will also be negatively affected, resulting in fewer jobs and less disposable income amongst consumers.”

As for the banking industry, in his view banks are likely to struggle more to get funding and their cost of capital will increase. This is especially true for banks that obtain a large part of their funding from foreign sources.

“They will also very likely try to shift the pressure to their retail and commercial clients. On the plus side, SA’s banks are well capitalised and relatively stable,” said Eksteen

What does junk status mean for consumers?

A weaker rand means petrol prices are likely to rise. If petrol prices go up‚ food prices will follow. The raw ingredient of petrol is oil‚ which is bought in dollars‚ so when the rand weakens‚ oil prices rise and so does the petrol price. The knock-on effect of a weaker rand is higher transport costs. Higher transport costs affect the price of everything moved by trucks – from food to imported goods and anything you buy at a shop. This will definitely affect many consumers spending habits and to stretch monthly budgets even further.

What does junk status mean for debt?

When giving their reasons for downgrading the SA government’s foreign debt‚ Standard & Poor’s predicted that interest rates would rise‚ regardless of their downgrade decision. Ongoing tensions and the potential for further event risk could weigh on investor confidence and exchange rates‚ and potentially drive increases in real interest rates. If interest rates go up‚ as S&P expects‚ the cost of borrowing goes up.

This increases your credit card repayments and the amount you need to pay the bank every month for your short-term loan or car and home loan. The real effect of the downgrading will be of the up-and-coming middle class who are teetering on the brink of making the middle class. Suddenly their debt becomes more expensive and they can’t afford it and their home is foreclosed‚ or they have their cars taken away by the bank [due to missing repayments].”

Analysts also expect inflation to rise as a result of S&P’s decision and the Reserve Bank often hikes interest rates in response to higher inflation.

What does it mean for taxes?

Food‚ petrol‚ and the cost of your loan won’t be the only things going up. Taxes could also rise. The government borrows almost monthly to pay its bills as it spends more than it earns. Many institutions such as banks are not allowed to invest in junk status debt. This means the government will need to borrow from people who are willing to invest in higher risk debt and this is more expensive. Which will intern affect the budgets for state-owned parastatals as well as the quality and roll out of government service delivery.

Junk status pressure

As you can see junk status will affect almost every part of the South African economy and the cost of living will continue to rise rapidly. If you’re feeling overwhelmed by your current financial situation which will only be further compounded by junk status, feel free to contact us. To Speak to one our consultants about debt review contact us here.