Cape Town - Plastic makes the world go round, or so some credit providers would have you believe. Whether you earn a salary of six figures a month or a lowly four figures, not many can say they are debt-free.
A combination of factors – living beyond your means, an economic downturn and job losses – have contributed to people becoming overindebted. But there is hope.
Thousands of South Africans have completed debt review processes and can claim to be debt-free. By the end of June, 5 549 people countrywide had been issued clearance certificates by debt counsellors.
Among them is * Amy, 40, from Khayelitsha. She received her debt clearance certificate at the annual Debt Review Awards last month.
After four hard years, she can relax. “I’m finally free. This month, all the money I make will be mine,” says Amy. Having learnt from her ordeal, she wants to live a credit-free life.
Amy has three sons, aged 10, seven and four. Her husband is unemployed, occasionally securing short-term work. She also supports her parents-in-law and her mother.
The family’s sole breadwinner, Amy takes home a little over R4 000 after deductions. After paying school fees, her three clothing accounts, a furniture account and a credit card, she barely had money left to pay for food. “That is where the credit card came in. I had to use it to buy food,” says Amy.
Buckling under the weight, Amy went into deep depression and couldn’t sleep at night. She felt guilty because she couldn’t provide properly for her children.
She became anxious around the 15th of the month because she knew she wouldn’t be able to make payments and the nasty phone calls from creditors would start.
“In 2010, I realised I was in trouble. I was in deep. I walked around like a zombie. I needed help or I would die from the stress.”
Amy went for debt counselling – a process where arrangements are made with creditors to reduce payments over five years on average, so that families have enough money left to pay for basics. For this period, the person has no access to existing or further credit.
“It seemed like it would never end, but it taught me discipline,” Amy says.
One of her biggest weaknesses was seeing an item she wanted and buying it on credit. Now she knows she should wait until she has the cash to pay for it.
Because she doesn’t have crippling payments, she will start saving to extend her house. Plans are in place for her husband to further his education so he can become more employable. This would help ease the financial burden on Amy.
“When my sons are old enough, I will teach them the right way,” she says.
Zak King, Debt Free Digi editor, says the number who have used the debt review process is heading for the 500 000 mark. Six thousand people a month apply for debt review. King also organises the awards.
At the start, becoming debt-free might seem like a long-term commitment, but King says most accounts are payable, whether over 24 months or 25 years (bonds).
“Normally repayments are not the problem. It is the high monthly amounts demanded that conflict with the need to buy food for the family or school clothes or cover insurance,” says King.
Through a debt review, people can make payments without the stress of collection calls and summonses. A big help is that interest rates are lowered to assist consumers. But this doesn’t mean it’s easy. King says by the time families reach for help, they have scaled down – even on medical aid and insurance.
They are given advice about how to draw up a better-balanced budget.
“In the rare case where they have a holiday home, or a Ferrari in the garage, they might have to look at selling such assets, but this seldom happens,” says King.
* Not her real name.
Dealing with those ‘I wants’
Children often have unrealistic ideas of what their parents can afford, sometimes demanding expensive items. When parents say they don’t have money, some children suggest they use credit cards – without knowing the consequences.
Alan Winde, MEC for Economic Opportunities, says it’s important to teach children from an early age about saving money and budgeting.
Parents can use the pocket money system to educate their children about the value of money.
“This is a great way to show children how small amounts can grow over time. It is useful if children have a goal in mind as to what they will use their savings for,” says Winde, pictured below.
He adds that with South Africa’s high levels of indebtedness, it’s crucial that all children, regardless of their financial situation, understand the concept of saving and managing money.
Where parents can’t afford pocket money, instilling a sense of value in taking care of physical objects that are not easy to replace is an alternative method of preparing children to be “resource-wise” later in life. These objects include clothes and toys.
The provincial office of the Consumer Protector holds regular financial literacy campaigns, taking in schools, to teach children the importance of managing money and the value of saving.
Lessons include: the difference between a want and need; methods of saving; how to develop a budget; and how saving can help you.
The best piece of financial advice Winde received as a youngster was to save 10 percent of his salary. He stuck to this advice, but says youngsters today are not adhering to this principle.
Roger Brown, chief executive of Credit Matters, advises young adults to be vigilant about credit. “Young adults often fall prey to the credit freely offered to them when they start their careers.”
Brown’s advice is to draw up a realistic budget that looks honestly at income and expenses, and to monitor it regularly.
“Many fall into the debt trap because they don’t know how much they can afford. Take responsibility and know your financial status.”
Those who run into trouble should be proactive and see a debt counsellor as soon as possible, Brown says.
Lebogang Selibi, spokeswoman for the National Credit Regulator, says while age-related data isn’t published, the number of applications from people of all ages is increasing.
She says factors contributing to over-indebtedness include indulgence and “living in the first-class lounge”. Other factors that could affect youth are ignorance of financial products, a lack of planning, social pressure, reckless lending, and interest rate increases.
“Education can start when young and be altered according to the needs of the child and age. We don’t really have a specific age, but as soon as they understand finance you can start introducing what credit means.”
Lesibi urges all consumers to know their standing by checking their credit reports with registered credit bureaus. People are entitled to a free credit report once a year. Contact details for bureaus are given at www.ncr.org.za
The joy of coming to nought
Having a zero balance on your credit card is a liberating feeling. Just ask Richard Bezuidenhout, who has finally cleared that debt.
It took him seven years of sacrifice and planning, but on July 25 he made his last credit card payment.
Describing his journey on his blog, richardtalks.co.za, Bezuidenhout encourages people to set goals and keep working towards them.
“It’s not always easy, but it’s possible; you just have to believe and keep pushing forward,” he writes.
Last year he and his wife had their first baby, so household expenses shot up. Their monthly shopping basket went from R1 500 a month to R2 800 – excluding weekly food items.
Bezuidenhout, who runs his own business, hasn’t had a pay increase in three years and most months was left with only R300 to R500 in his personal bank account.
His method was to use a part of what he planned to save each month and make an additional payment on his credit card.
“It took discipline not to use the credit card, especially when there was so much month left at the end of the money,” he writes.
Now that the credit card balance is zero, he’d like to clear his overdraft, along with his bond. Bezuidenhout’s car is paid off, and he plans to continue using it for a few more years.
“I’m not sure what the next option is, but the journey is towards financial freedom. It’s not going to happen by itself – there has to be some planning,” says Bezuidenhout.
Negative ‘blacklist’ a thing of the past
While many people still use the term “blacklist” it has been discarded from the local credit industry’s vocabulary.
The term arose in the times when credit bureaus only held negative or default data about consumers, and no positive payment behaviours were shared by credit providers through credit bureaus. But now credit bureaus hold both positive and negative data.
If a consumer is negatively listed at the credit bureau and finally gets on the positive side, that does not guarantee that the consumer will automatically get credit. The credit provider needs to conduct an affordability assessment – income, living expenses, current debt – to check whether the consumer will be able to pay back the credit.
Most in the clear
According to a report from the Credit Bureau Monitor for the first quarter of this year:
* There are 21.71 million credit-active consumers.
* Of these, 12.11 million are in good standing.
* Of 77.18 million accounts, 57.9 million are in good standing.
Steps to take to clear your obligations
Debt Free Digi editor Zak King says the top reasons people find themselves overwhelmed by debt are:
* Medical emergencies
* Car repairs
* One partner losing a job or getting lower commissions
* Trying to maintain the lifestyle enjoyed before a blow to the finances can be detrimental. Many think they can find a new job in two months, but it can take up to nine
King suggests that when people get into trouble with debt, they should move to cheaper accommodation, cancel satellite television, cut cellphone bills and similar expenses, and begin to sell assets.