How to Get Out of Debt in South Africa – Where Do You Start?
If you are trying to work out how to get out of debt in South Africa, the first step is to understand the extent of the problem. You need to know how much you owe, what you are required to pay each month and, most importantly, how much you can realistically afford after paying your normal household expenses.
For some people, getting out of debt may require little more than reducing expenses and negotiating with creditors. For others, expensive financed assets may need to be sold or surrendered. Where these options are not enough, more formal debt solutions may need to be considered.
Step 1: Work Out Exactly How Much Debt You Have
Make a list of all your debts, including home loans, vehicle finance, personal loans, credit cards, overdrafts, store accounts and any debts already handed over for collection or legal action. Record the outstanding balance and monthly instalment for each account. Do not leave an account off the list simply because you have stopped paying it. The objective is to create an honest picture of your total financial position.
Step 2: Calculate What You Can Actually Afford
Next, calculate your household income and reasonable monthly living expenses. Include housing, food, electricity, transport, medical costs, school expenses, insurance and other necessary household costs. What remains is the amount genuinely available for debt repayment. This is important because the solution should be based not only on how much you owe, but on what you can realistically afford to repay each month.
Step 3: Stop Using New Debt to Pay Old Debt
Using one form of credit to pay another is a warning sign that debt is becoming unmanageable. You may find yourself using a credit card for groceries because your salary has already gone towards debt repayments, using an overdraft for normal living expenses or taking another loan to settle existing accounts.
This provides temporary relief but does not solve the underlying problem. The National Credit Regulator identifies borrowing to repay other debts, using credit for necessities and skipping some accounts to pay others as indicators of over-indebtedness. If this has become your normal monthly routine, it is time to reassess your financial position.
Step 4: Can You Reduce Your Debt Commitments?
Before restructuring all of your debt, consider whether particular financed assets are consuming too much of your monthly income.
Vehicles are a common example.
If one or more vehicle instalments are making the rest of your budget unaffordable, the finance provider may have a quick sale or assisted sale department that can help you sell the vehicle and settle the finance.
Where keeping the asset is no longer possible, voluntary surrender may also be considered. Selling or surrendering a financed asset does not necessarily mean the debt disappears. If the asset is sold for less than the outstanding finance, a shortfall may remain. However, removing a large monthly instalment can sometimes make the remaining household debt affordable again.
Step 5: Can You Negotiate With Your Creditors?
If your financial difficulty is temporary, contact your credit providers and ask whether they can offer a temporary reduction or revised payment arrangement. Any arrangement must be affordable, but it should also be sufficient to deal meaningfully with the debt. Ideally, the agreed payment should cover the interest and charges on the account while also reducing at least some of the outstanding capital balance. If the payment is too low to cover the ongoing interest and charges, the outstanding balance may continue to grow despite you making regular payments. This ultimately defeats the objective of trying to reduce your debt.
If your home loan is placing temporary pressure on your monthly budget, it may also be worth approaching your bank to ask whether you qualify for a temporary suspension or payment relief on your bond instalments. Some banks may offer short-term relief, which can provide an opportunity to use the money temporarily freed up to settle arrears or reduce other expensive debt. Any payment relief should be discussed and agreed with the bank beforehand, and you should understand how the suspended payments, interest and repayment term will be dealt with afterwards.
The objective is not simply to postpone debt. It is to use any temporary breathing room strategically to improve your overall financial position.
Step 6: Would Debt Review Help?
If you have a regular income and can afford to repay your debt, but cannot afford the existing contractual instalments, Debt Review may provide a way of restructuring those repayments. This can be useful where you want to retain financed assets such as your home or vehicle and have sufficient income to maintain a reduced repayment plan.
However, Debt Review does not make the debt disappear. If the proposed Debt Review instalment is still unaffordable, another solution may need to be considered.
Step 7: What If Legal Action Has Already Started?
If accounts have already fallen substantially into arrears, do not ignore legal correspondence. Credit providers are required to comply with the section 129 process before commencing enforcement proceedings, although consumers are not always aware that these notices have been sent.
If summons has already been issued in respect of a particular debt, that account may no longer be capable of being included in a new Debt Review application. This is why you should obtain advice as soon as legal proceedings commence.
What If None of These Options Solve the Problem?
Sometimes selling or surrendering financed assets, negotiating with creditors or restructuring repayments is enough to restore affordability. Sometimes it is not. You may have no financed assets available to sell or surrender, the proposed Debt Review instalment may still be too high, legal enforcement may already have commenced, or your overall debt may simply be too substantial to repay realistically.
At this point, voluntary sequestration may be worth assessing. Sequestration is a formal insolvency process rather than another repayment arrangement. Whether it is appropriate depends on your income, assets, liabilities and overall financial circumstances. This is why an individual assessment should take place before sequestration is recommended.
How to Get Out of Debt in South Africa: Start With What You Can Afford
There is no single way to get out of debt.
Sometimes the solution is to reduce expenses or negotiate with creditors. Sometimes an unaffordable vehicle or other financed asset needs to be sold or surrendered. Debt Review may assist where the debt remains repayable but the monthly instalments need restructuring. And where these options no longer provide a realistic solution, sequestration may provide another way forward.
Start by understanding what you owe, what you can actually afford and which commitments need to change to make your financial position sustainable again.
Contact Solvendi for a confidential assessment of your financial position and a clear explanation of the options available.
Disclaimer: This article is intended for general informational purposes only and should not be regarded as legal or financial advice. The appropriate debt solution will depend on your income, expenses, assets, liabilities and individual circumstances. Professional advice should be obtained regarding your particular financial position.
Contact us to discuss your current situation and receive a free detailed assessment of how the process works and what your costs will be. We have legal experts with 20 years experience that can guide you through the process. Our main aim is to be as informative as possible. Let's Chat.
If you require advice with regards to Sequestration, Business Liquidations, Insolvency, Bankruptcy or Credit Rehabilitation kindly contact SOLVENDI as follows:
National: 087 220 0710
Head Office: 010 880 7589
Email: consultations@solvendi.co.za
Website: www.solvendi.co.za
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