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Cash-Strapped South Africans Desperate for Debt Relief

The COVID-19 pandemic has been devastating for the South African economy. The amount of people in debt who are relying on their credit to stay alive has sky-rocketed, leaving the South African economy teetering on the edge of borrowed time. Between the first and second quarters of 2020, the Gross Domestic Product (GDP) fell to a record low of -51%. According to historical data, this is the steepest decline in GDP since 1960. This decrease had had long-lasting implications on the rebuilding of the economy and has resulted in consumers turning to banks and credit providers to get them through the difficult times.

Despite a general economic decline in all industries, those most affected by this crash are at the micro-level, namely households and individuals. Many permanently employed workers have had to transition to contractual or informal employment, as businesses try and mitigate their own losses. Households below the poverty line have increased dramatically, while an estimated 34% of middle class families are estimated to fall into vulnerability. More and more South Africans are becoming cripplingly indebted as they rely on their credit to support themselves and their families. Many people who were on track to pay off their debts prior to the pandemic have now been forced to take two steps back, as they struggle to stay afloat.

“Living off one’s credit has seriously negative impacts on one’s credit ratings and will just perpetuate the debt cycle,” says Hans Overbeek, CEO and founder of Cyber Finance, one of South Africa’s leading debt management companies. Overbeek adds, “the key to digging yourself out of debt while the country is still in the throes of a financial crisis, is to be smart and conservative about your money and make paying off your debts your first and foremost priority.”

Hans Overbeek and Cyber Finance suggest following these three tips when indebted beyond your means:

1.    Avoid multiple credit cards

Accumulating multiple credit cards will only result in you having more money to pay off, at even higher interest rates. Pay off the credit card debt you have first and then work on applying for lower interest loans that will allow you to pay back your money over a longer period of time, with less pressure.

2.    Do your research and understand debt traps and how to avoid them

A debt-trap is a situation in which a person who is already indebted, is led into a cycle of re-borrowing money — this can happen very easily if you are living off credit and under pressure to pay back high interest loans. Getting caught in debt traps makes it incredibly difficult, sometimes impossible, for people to pay back their debts. When you are in a vulnerable position, like so many South Africans are at the moment, knowing how to protect yourself against predatory lenders is imperative. Don’t succumb to pushy credit providers or let yourself be fear mongered into thinking it’s the only way out. Know the signs, and be aware.  

3.    Know when to ask for professional help

Sometimes your only way out is to get some help. This isn’t something to feel ashamed off. It shows you are aware of your situation and the urgency to correct it. Debt counselling and debt review are two services that can buy you enough time to put a solid repayment plan in place, before any legal steps against you are put in motion. The National Credit Regulator (NCR) will protect you from any legal action taken against you for the first 60 days of debt review. Asking for help will make your life easier and you will be able to see a clear path going forward.

“It is essential to take the right actions sooner rather than later and opt for debt review when you are in over your head. Certain debt management regulations can protect you and reduce the financial pressure on you and your family. Take control of your debt before your creditors come after you or it may be difficult to get the relief you need,” concludes Overbeek.