How South Africans can fight debt

Managing debt effectively remains a key challenge for many South Africans, says Shirley Smith, Old Mutual Finance chief operating officer.

Financial Planning Week aimed to promote professional financial planning for all and create awareness about the value of financial education and planning. It’s an initiative of the Financial Planning Standards Board, of which Old Mutual is a key partner.

“With consumer inflation seeing a year-on-year increase of 4.6 per cent in July 2017, according to Statistics South Africa, South African households are clearly feeling the pinch, causing many of them to resort to pay-day loans at high interest rates,” Smith said.

“Incurring a huge amount of debt is an easy trap to fall into, and it plays havoc with your financial wellbeing. People need to understand that debt needs to be managed and brought under control. Borrowing from Peter to pay Paul is not a smart way to go about managing your finances.”

The 2017 Old Mutual Savings and Investment Monitor indicates that on average, working metropolitan South Africans are allocating 16 per cent of their monthly income to paying back debt.

“This is significantly high. The fact that this number has remained consistent over the past six years is concerning as it demonstrates that we are in fact trapped in a recurring cycle of debt and not properly managing our money,” explained Smith.

“Consumers need to urgently do a reconciliation of all their debt owed on a monthly basis and consider solutions to manage debt more proactively. For example, a debt consolidation loan is a useful tool that can help customers manage debt and even free up some money to start saving for future financial wellbeing goals, like retirement,” she said.

How to effectively manage your debt:

• Make your monthly debt repayments on time. Even a payment that is only 24 hours late can be bad for your credit rating
• Always pay at least the minimum instalment required
• If possible, pay more than the minimum payment on accounts to further improve your credit standing
• Pay your most ‘expensive’ debts off first; these are usually the ones with the highest interest rates such as clothing and furniture accounts
• Close accounts not in use. Credit providers assess the full facility of the credit agreements on record, even if they are not being used
• Don’t ignore a letter of demand or any communication from your creditors. Always be proactive and take appropriate action by contacting your creditor to discuss a repayment plan if you are not able to meet your obligations
• If you simply cannot make payments on all your outstanding accounts, speak to a debt counsellor who will, on your behalf, negotiate revised terms on settling your outstanding debt.

“By taking these simple steps to reduce your debt and avoiding incurring additional unnecessary debt, you will spend less on interest and be able to save or invest more money towards goals such as a comfortable retirement. Use Financial Planning Week as an opportunity to get your debt under control.”

For more information on effectively managing your finances, visit www.oldmutual.co.za