Reduce debt, or else!

Are you on a slippery slope sliding ever deeper into debt? If you answered yes, but have yet to join 6.5-million South Africans on a credit bureau blacklist, act now and save yourself from ruin!

Consumers have to face up to the grim reality of financial instability in the alarming wake of soaring food and energy costs as well as interest rates that are set to remain high for at least the rest of the year.

This debt-reduction solution by Toby Wooldridge, Head of Go Banking, offers a step-by-step plan to prevent a short-term money problem from escalating into a future financial crisis or worse — a spot on the credit bureaus' black list.

6.5-million blaclisted in SA.

According to the latest Ipsos Markinor Survey on socio-political trends released this week, 64 percent of South Africans believe that people are living beyond their means and spending more money than they are earning.

According to Wooldridge an often overlooked aspect of debt is its effect on credit ratings. “With the number of defaults increasing, it can be expected that Experian and Transunion, the two biggest credit bureaus in South Africa, will be issuing far more negative than positive credit reports this year.”

In South Africa, an individual’s credit score is determined by five main categories of information — payment history (35 percent of the overall score), amounts owed (30 percent), length of credit history (15 percent), new credit (10 percent) and type of credit used (10 percent). Companies then use your credit score to assess how ‘risky' an investment you are.

“It’s quite simple, the more payments you miss, the worse your credit score. Until your poor credit rating has been rectified, you will unlikely meet the criteria to attain additional credit and if you do qualify, you will then struggle to get the credit at a suitably low interest rate.”

Wooldridge has advice for South Africans with poor credit ratings.

Wooldridge has some advice for South Africans with poor credit ratings. “Before seeking the assistance of debt counsellors, look into a do-it-yourself debt reduction plan. It’s an easy and practical route, which is too often disregarded.”

The first step in the plan is to evaluate your debts by simply going through all your statements from institutions with which you have accounts and writing down the amounts you owe, interest rates you are charged and the monthly amount due for each debt. With this overall snapshot of your debts, you must then determine your budget by subtracting your monthly expenses, which will include primary expenses (i.e. rent or bond repayment) as well as secondary expenses (i.e. entertainment), from your income. The amount of money you are left with will figure in your debt repayment budget.

From here you will then decide one of the following:

1. You’re spending more than you earn.

2. You’re spending exactly what you earn and the most unlikely of the possibilities.

3. You’re spending less than you earn.

Once you ascertain where you stand you will then need to develop an action plan to determine which debts you must repay first and which expenses you can do without. Before starting on your action plan, you must go back to your initial list of debts and the interest rates you’re being charged to judge which debts should be repaid first (i.e. micro-loans as they are costing you anywhere from 30 to over 100 percent). Above all importance, you must follow through with the plan to beat the burden of poor credit ratings and debt repayments.

Wooldridge says that for those who feel they simply cannot manage a debt reduction plan on their own, debt counsellors then serve as practical aids to help improve one's credit rating. “Debt counsellors are a good option because someone else will decide how much you repay your creditors every month, leaving you with enough to live on,” says Wooldridge. “Stretching out your repayments in this way will help to make them more affordable and help you stay afloat. If you choose this course, ask about an accelerated repayment plan so you can repay your debts faster.”

Whichever route you choose, taking charge of your financial situation is necessary to turn your poor credit ratings into a positive credit report and more importantly, to ensure you have a debt-reduction solution that prevents a short-term money problem from escalating into a future burdened by financial instability.

RSS

de.li.cious

facebook