Over the past decade, South Africa’s cost of living has soared and households everywhere are feeling the strain. Electricity prices have risen by 85% since 2020 and water prices by 68%, with costs rising 30% across the board, according to a recent Competition Commission report, all while income remains stagnant. Plus, fuel prices are rising.
Families are carrying the cost. Around 34% of families are highly indebted, spending more than 35% of their income on debt repayments. Among high-income earners, 48% of income goes to repaying debt.
Here’s how you can tell if you’re getting in over your head – and what you can do about it.
Six key financial warning signs to watch for
Learning to recognise key tipping points allows you to take action quickly before things get worse. Here’s what to watch for:
1. You’re always running an overdraft
An overdraft can be a useful tool, but it shouldn’t be relied on to get you through the month – every month. This is a sign your expenses may be outstripping your income and it’s time to cut back.
2. You don’t have emergency savings
It’s normal to face unexpected expenses from time to time – like new tyres or car maintenance, a dentist appointment or a broken washing machine. Having emergency savings gives you the resilience to weather the blow and avoid disaster. Three months’ salary is the ideal amount to save – but having even R1 000 tucked away for a rainy day will be a big help.
3. You buy essentials on credit
If you’re relying on loans to pay for everyday items like groceries, that’s another sign that you’re overspending. Even though online shopping has quickly become the norm, you need to watch your funds and be able to pay off the full balance of your credit card every month to avoid interest charges.
4. Your payments are always late
There’s a reason why landlords expect you to pay rent on time. Late payments are a classic sign of financial strain, because your cashflow isn’t sufficient to allow you to pay all your obligations at the same time. Repeated late payments mean extra charges and even service cancellations. Take a closer look at your budget so you can meet payments on time and avoid a hit to your credit score.
5. You avoid thinking about money
There’s no stress like money stress. If you’re ignoring your banking app, avoiding conversations with your spouse, or screening your calls to hide from creditors, that’s a sign it’s gone too far. Put your own mental health first and take charge of your finances again.
6. You consider a new loan to help you pay off the debt you already have
Getting a loan can feel like the answer to your cashflow problems – but piling on more debt when you already can’t afford the payments you currently have is asking for trouble. It’s time to take urgent action.
What to do if your debt is getting out of hand
You’ve seen the warning signs and you’re ready to take action. Here’s how you can get back on track.
1. Check your budget
If your expenses are out of control, the first step to pulling back is to draw up a budget. Check how much you’re spending on essentials and see if your estimated costs for transport and groceries – which vary from month to month – need to be adjusted.
2. Trim your costs
Go through your card transactions line by line for the past few months and see where you can cut back. Look out for dining out, travel and entertainment expenses – where 51% of South Africans are cutting back. You can also look out for subscription costs or memberships which aren’t giving you value but which act as a drag on your cashflow.
3. Contact your creditors
It’s always better to contact your creditors in advance rather than waiting for a debit order to bounce – which incurs additional fees, impacts your credit score, and affects your payment history. If you think you won’t be able to make a major payment such as your mortgage, vehicle finance, or medical aid, contact your provider in advance to agree a payment plan.
Need more detail? Take a look at these strategies to pay back your debt despite inflation.
When to consider debt review
If your expenses consistently outstrip your income, or you’re unable to make your loan payments while also covering essentials, you may be overindebted and qualify for debt review. This is a legal process which protects you from having your assets repossessed and provides for an extended debt repayment plan with affordable monthly installments.
At Debt Rescue, we’re committed to helping consumers take back control of their personal finances and achieve stability. Our NCR-registered counsellors negotiate with creditors on your behalf and restructure your debt. Contact us today for an obligation-free quote.