Finance Minister Mr Malusi Gigaba’s 2018 Budget speech spells tougher times ahead for lower-income earners, with the increase in VAT placing more pressure on already cash-strapped South Africans. This spells bad news for those who are debt-stressed. African Unity Life (AUL) and Debt Hero explain what over-indebtedness is… and whether there is a way out.
The “above average” increase in social grants for vulnerable households, and the continuation of the zero-rating on basic foodstuffs, were among relief measures for lower-income earners announced during the 2018 budget speech.
Finance Minister Malusi Gigaba’s address followed public hearings earlier in February about the National Credit Amendment Bill. It has been met with mixed reactions to the targeted debt relief measures it proposes. These include enabling access for anyone who earns less than R7,500 per month and who has unsecured debt of up to R50,000, to apply to the National Credit Regulator (NCR) for assistance. If the application meets predetermined criteria, this could result in their debt being written off in part, or entirely.
Some advocacy groups have welcomed the proposed amendments and say it will provide much-needed help for the social grant beneficiaries who are often preyed upon by loan sharks. There are, however, also concerns that it will “reinforce bad credit behaviour by rewarding over-indebted, credit-active South Africans with an easy way out”.
While we await a decision about these suggested relief measures, many people may wonder how to determine if they are debt-stressed, and whether they need assistance.
What is debt-stress or over-indebtedness?
“Anyone who struggles to repay creditors – according to the Terms and Conditions of an agreement – and, at the same time, finds it difficult to meet monthly living expenses could be over-indebted,” according to Debt Hero, a division of Legal Hero.
“Debt-stress can be attributed to low levels of financial literacy,” says Sonja Visser, CEO of long-term insurance provider African Unity Life (AUL). “Many consumers are not money-savvy; which in turn makes them vulnerable to accumulating debt. It’s in everyone’s best interests to help educate consumers – across all income groups – to ensure that they are financially capable and make informed decisions, as these can have repercussions in the future.”
“It’s in everyone’s best interests to help educate consumers – across all income groups – to ensure that they are financially capable and make informed decisions, as these can have repercussions in the future.” – Sonja Visser, African Unity Life
Is there a way out?
Debt review is a formal process designed to help consumers restructure debt into an affordable repayment arrangement. It is also the first step towards relief for those who are over-indebted, says NCR registered Debt Hero debt counsellor, Karin Augustyn.
“During the review process, a registered debt counsellor will assess the individual’s financial situation with them. They will draw up a budget, and negotiate an affordable repayment plan with creditors. In addition, all legal action and collections processes will cease because assets are protected under debt review and so will not be repossessed.
Augustyn adds that debt review is a legal process, and is binding until all debt is settled. “No additional credit can be granted to someone undergoing debt review; that is why a budget is so important. And sticking to the plan is crucial so that no more payments are missed. Once all of the debt is settled, the debt counsellor will remove the debt review record and the client’s credit report will be updated.