Johannesburg – Applications for debt counselling are increasing at an alarming rate and with higher petrol and food prices as well as a weaker rand, the outlook for debt-ridden consumers is bleak.
DebtBusters CEO Ian Wason said consumers only apply for debt counselling when it is almost too late.
“Before signing up for debt counselling, the average consumer spends more than 100% of their net income servicing debt, without taking into account their living expenses,” said Wason.
He said “payday” loans are mostly responsible for the increase in applications for debt counselling.
Payday lenders, also commonly known as loan sharks, offer short-term loans at excessively high interest rates and must be paid back when borrowers receive their wages.
Neil Roets, CEO of Debt Rescue, said especially the poor were being hit incredibly hard by the illegal operations of loan sharks.
“The problem is especially prevalent in areas where there is substantial economic activity like areas abounding gold, platinum and coal mines as well as in highly industrialised areas.”
People often don’t have a choice. Unable to take out further loans from credible financial institutions, they turn to taking out short-term, high-cost, smaller loans and continue to watch the interest rates on their debts pile up, said Wason.
Wason warned that with the rand tumbling, petrol prices increasing and ongoing strikes in the platinum belt it is shaping up to be a terrible year for consumers.
According to the National Credit Regulator, there has been a 29.5% increase in the number of debt counselling applications from January 2013 to December 2013.
According to Wason his company saw an 85% year on year growth in the number of debt counselling applications, compared with an increase of 80% a year ago.
Almost ten million adults have impaired credit records, which means they have failed to make three or more monthly payments or have an adverse listing, judgement or administration order against them, said Wason.
He said when consumers have no way out they turn to debt review for financial protection.
Wason list 7 tips to help solve your debt problem:
1. Acknowledge your debt problem: Recognise that you have accrued debt and that you have a debt problem. Set a goal to become debt free.
2. Work out your total debt obligations: List all of your debt obligations comprising who you owe money to, the amount still owed and the interest rates attached.
3.Prioritise your debt: Work out a payment plan and move debt obligations with the highest interest rates to the top of your list in order to ensure that they are paid off first, as this will reduce the overall amount of interest you will pay.
4.Draw up a monthly budget: In order to monitor where your money is going, list your income and expenses and constantly review your financial situation.
5.Save money and cut costs: Open up a savings account to put aside money each month. Work out areas where you can cut costs and reduce expenses. Review where you are spending money and try put it to be use where possible.
6.Stop borrowing more credit: Refrain from getting into further debt and stop borrowing money until you have successfully become debt free.
7. Sign up for debt counselling: The debt counselling process is a formally managed debt solution introduced by the National Credit Act in 2007, enabling South African consumers to become debt free fast.