Business & Economy

Monday, 26 November 2018 09:07

Savvy steps to get out of a debt spiral

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A recent report by the Word Bank shows that South Africa is one of the most indebted countries in the world, languishing under a R1.7 trillion personal debt burden.  According to the National Credit Regulator’s Credit Bureau Report, as at the end of June 2018, there were 24.59-million credit-active consumers of which almost 9.6 million had impaired records — that’s an alarming 40% of the credit active population.  Of the total credit active consumers, only 49.4% were current with their debt repayments, while 50.6% were either in arrears, had adverse listings or judgements and orders against them.

“With the economy taking a hammering, employment figures on the decline and a recent shocker petrol price increase, everything from transport to food and basic commodities is about to get a lot more expensive, adding more strain to the already financially stressed. There is no more crucial time to take the bull by the horns, carefully assess your financial and debt commitments, and put a plan in place to get on the path to better financial health in 2019,” says Tlalane Ntuli, Chief Operating Officer and co-founder of Yalu, a digital player in the credit life insurance space. 

Consider these savvy steps from Yalu to get out of the debt trap:

  • Critically assess your monthly expenditure - Knowing exactly what your monthly expenditure is allows you to critically separate the non-essential from the essential items and find ways to cut back.  Work out what your fixed expenses are (the ones you cannot cut back on like electricity bills, debt repayments and school fees) and discretionary expenses (the cappuccinos, magazine subscriptions and take-aways).  Do away with unnecessary discretionary expenses.  Subtract your fixed expenses from your monthly income - what's left over is how much you can spend on lowering your debt.­
  • Pay off your debt faster – Draw up a list of all your debts, including the outstanding balances and interest rates. You can tackle these debts in two ways – either pay off all your smallest debts first like store accounts and so on, and then once paid, redirect the money that you would have paid on those accounts into paying off extra on your remaining, higher interest-bearing debts. You will be surprised how just a little extra every month will reduce the loan term and the interest you pay.  Alternatively, tackle your debt with the highest interest rates first, like you credit card.   Make sure all your loan repayments are kept up to date at all times to avoid extra interest charges or worse, an adverse credit rating.
  • Draw up a budget and stick with it – keep your finances and budget on track as to how and when you spend your money. A budget also means you will be less inclined to spend money on anything that is non-essential and that you have not specifically planned for. Remove your credit cards from your purse and lock them away for safekeeping. When you budget consistently and remove the potential obstacles that could trip you up, you can start making things happen so that you reach your financial goals.
  • Motivate yourself to stay the course - It may sound trivial, but keep a spreadsheet of your debts, the payments and the reducing balances – sometimes just seeing the progress you are making towards your goal of killing your debt is great motivation to keep you on track and avoid a moment of weakness.
  • Check how much you are paying for credit life Insurance. If you currently have a personal loan, you will have credit life insurance which banks require as security for your debt should you become unable to service your loan repayments due primarily to death, disability or retrenchment.  You should not be paying more than the capped rate of R4-50 per R1000 loaned, but preferably less, and your premium should reduce every month in line with your reducing debt balance.  You are not obligated to take this Insurance cover with the bank and even on an existing loan, you can switch your credit life insurance to an independent provider like Yalu that offers lower rates and benefits without any repercussions for your loan as long as there is no break in cover.  You can save a significant amount of money on the credit life premiums and rather redirect that savings into paying your debt off faster.  In the end you save on the interest charges and the costs of the credit life insurance. 
  • Stop paying for things you don’t use – Check your bank statements for debit orders and charges on items you no longer use - like the extra insurance you took out on your cell phone you no longer own. Do you really the need the gym membership which you hardly use when you can opt for a park run that costs you nothing? Cancel all superfluous subscriptions – even seemingly small amounts can amount to a few thousand Rand over the year.
  • Protect your credit record - Your credit record is a compilation of information about the way you handle your credit and debt accounts, how you pay your bills, whether you have defaulted on any debt repayments, or have any judgements against you.  Your credit report affects many parts of your life, so it's important that it remains positive so that you can access credit in future and at lower interest rates by having a good credit profile. Never default on your credit payments, pay late or allow your debit orders to bounce, as this can affect your personal credit rating.
  • Talk to a professional credit counsellor -  if you find yourself in chronic debt and unable to see your way clear, you may need professional debt counselling. This is no walk in the park though and you must be approved by the debt counsellor as being over-indebted according to the definitions of the National Credit Act. Debt counselling is a regulated process whereby a qualified and registered debt counsellor negotiates with all your creditors for more favourable repayment terms and possibly interest rate so that you can afford to pay your debt off. 

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Our name “Yalu” is short for the Zulu term isiyalu - the source of a river.  Yalu was born out of a passion to nourish and bring life to the world of credit life insurance. Our goal of delivering true value for money is evident in the transparency of our products, the simplicity of our process and the fairness of our pricing.  Simply put, we believe in doing right by our customers. By making credit life insurance easy to understand, ensuring that you pay what is fair and rewarding you when you settle your loan, we are changing the face of credit life insurance for your benefit.

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