As expected, the Reserve Bank’s Monetary Policy Committee increased the repo rate this week, resulting in more financial burden for hard-pressed South African consumers.
So what should consumers do when they are struggling to keep up with debt repayments in the midst of ever-increasing interest rates?
Debt Busters CEO Benjy Sagers says as a result of rising interest rates globally, consumers with financed cars and homes have had to pay a lot more to service these debts.
Sagers says the most recent Debt Busters Debt Index shows the number of inquiries it received year on year has gone up by more than 40%.
“All of these things compounded mean that there is a large portion of consumers who are really struggling to service their debt at this point in time. It’s difficult to make provision to service these debts but it’s necessary if you want to keep your assets.
“Figure out where else you can cut back from to ensure you are servicing these debts, particularly for bonds and financed vehicles. If consumers are unable to prioritise these, debt counselling could be an option to consolidate all their debt.”
Absa says it has seen more customers fall into distress.
“However, not all ask for extensions as we offer various solutions to assist in challenging times.
“Among these options, vehicle finance customers may consider short and long-term payment plans, voluntary surrender or selling their vehicle to shore up their finances and remain in a healthy credit position. For home loan customers there are both long and short-term payment plans that can be explored, including the option of a term extension,” says an Absa spokesman.
Absa says it is important for indebted consumers to speak to their bank as soon as they realise their financial circumstances have changed.
“The sooner the bank is engaged, the better. Our approach is to work with our customers to remedy their financial position and help them retain their homes or vehicles through various processes and tools which can assist during this time,” says the spokesman.
Sager says the worst thing a consumer can do is to avoid the payment or not pay the debt and get into arrears. “If you’re unable to pay the full amount that you’re due to pay, work with creditors and try to ask for a few months of relief and so on. If that doesn’t work do have the conversation with a debt counsellor to see if you might be eligible for debt counselling.”
Asked how debt review works, Sagers says it is a legal process designed to help consumers who are over-indebted.
“It’s designed to help consumers whose net income isn’t sufficient to cover their expenses and debt repayments. It stretches how long they have to repay back the debt, and lowers the monthly payment amounts that they make. But the total debt that consumers are responsible for is still the same. A reputable debt counsellor will work with a consumer to restructure their debt repayments in such a way that it becomes more affordable for the consumer and this will be based on what the consumer can afford to pay back on a monthly basis with the hope that they have longer time to pay back their debts.”
Absa says if a payment arrangement cannot be found, it offers Absa’s HelpUSell for customers to sell their vehicle or home with the bank’s assistance. In the case of a vehicle, if a family member buys the asset and wants to finance it through a loan they still need to be vetted through the bank’s regular qualifying criteria.
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