The term ‘drowning in debt’ is increasingly becoming a reality for many South Africans who find themselves neck-deep in credit card and retail store account debt. However, there are steps that can – and should – be taken to get yourself back in the clear and clean up your credit score at the same time.
According to a report released last year by the National Credit Regulator, of the 25 million ‘credit-active’ consumers in South Africa, a frightening 10 million were behind in their loan repayments. Even the World Bank has deemed South Africa to be the most indebted country in the world.
No wonder so many people are scared to answer unknown numbers on their cell phones, in fear that it may be a creditor calls. So, if this applies to you, how do you get back on track?
“Getting out of debt, and then staying debt free thereafter, requires a well-thought-out, step-by-step plan that needs to be followed to the letter. It’s not easy, but it is possible,” says Jonathan Hurvitz, Chief Financial Officer at an online retailer, Teljoy.
“So many of us work so hard and stick to a plan to do things like get fit and lose weight, and we feel incredible when we reach our goal. One needs to approach becoming debt free in the same way. Additionally, imagine the same sense of accomplishment you’d feel as one-by-one you see your debt-ridden liabilities fall away.”
One of the first things Hurvitz recommends is making yourself aware of exactly how much debt you hold by listing all the credit cards, loans and store accounts you owe money on, and the benefit of being aware of the interest that is being charged on each one, and then work out a monthly budget and repayment plan.
“It’s important to tackle the ones that are drawing the highest interest first,” says Hurvitz. “These are normally short-term loans from microlenders, credit card accounts and can also include retail accounts.
“So often we use these avenues to buy big-ticket items on credit, like electronic equipment, home appliances and even furniture. But there are other ways to have these things without racking up the interest or tying yourself up into contracts that will hold you liable for payment even when your circumstances worsen and you can no longer pay.”
Teljoy’s model enables customers to buy items such as these on a rent-to-own model via a month-to-month contract that can be upgraded, downgraded or cancelled at any time. “If your circumstances change for the worse, you simply cancel the contract. Plus you know all your hidden costs from the get-go. There are no crippling interest rates on top of monthly payments, so budgeting is also made so much easier.”
Hurvitz stresses that it’s the interest charged on other accounts that often runs away from consumers: “Few people actually account for the interest they are paying monthly on, for example, outstanding accounts like credit cards – even when they’ve planned a budget. It just seems to be one of those hidden costs that really creep up on consumers.
“Credit is like a bubble, incurring too much is bad enough but the interest often results in the bubble bursting”, add Hurvitz.
“More importantly, while you’re on your way to becoming debt free, try to leave your credit cards at home and stop the temptation to spend in the first place. Many people see the cash on their cards as theirs. But really, it belongs to the banks; you are just borrowing it from them, for which they will charge you heavily for the privilege of spending their money!”
Becoming debt free is also a good way to get a credit rating back on track, notes Hurvitz, if you’ve slipped up on the payment of accounts. This is vital, especially because a number of companies will only supply goods and services if they can verify that a customer’s credit record is clean – among them, Teljoy.
“South Africans have become notorious for living beyond their means,” says Hurvitz, “with many people using things like credit cards and high-interest bearing accounts to supplement income. This is what it means to be ‘living beyond your means’. If your monthly expenses exceed your monthly salary cheque then this is exactly what you are doing. In the most extreme cases, it may be wise to seek out debt counselling with a reputable debt counsellor that has been registered with the National Credit Regulator.”
Another benefit in buying from an online retailer such as Teljoy is that, should an item need to be repaired, the customer does not have to incur debt to pay the repairman, as the repair will be covered by Teljoy.
“Becoming debt free is all about being strict with yourself and making the right choices when you do purchase certain goods,” concludes Hurwitz. “This is all about starting along a path to financial freedom.”