Secrets to overcoming debt

Keeping a household’s finances in a healthy space is not always easy. Especially if you take into account the cost of education, books, stationery, uniforms, transport and school tours. Frank Magwegwe, CFP and Head of Momentum personal adviser services answers our burning questions about debt and how to overcome it.

How many South Africans struggle with debt?
The latest statistics from the National Credit Regulator (NCR) are as of 30 September 2014 show that there are 22.50 million credit-active consumers in South Africa:

  • 12.45 million (55.3%) consumers are classified as in good standing
  • 10.05 million (44.7%) consumers are classified as having impaired records - accounts that have not been paid for three months or more.

Why do we struggle with debt?
The key underlying causes are a culture of buying on credit (instead of saving up to buy with cash), easy access to credit despite the tighter legislation on lending, and lastly poor financial education that leads to poor money management skills.

Compounding the key underlying cause is salaries not keeping up with inflation because of the rising cost of living (food, transport, school and housing).

What advice do you have for families who are struggling to repay their debt?

  • Analyse your expenses to understand where the money is going.
  • Cut out non essentials like eating out, entertainment, etc.
  • Discuss your financial situation with the creditors as soon as you start experiencing repayment problems. In most cases they are willing to adjust repayment arrangements before repossession of assets.
  • Seek help from an accredited financial adviser.
  • Consider applying for debt review with registered NCR debt counsellors

Can families overcome their debt problems?
Yes, depending on the size of the debt over periods of 6, 12 or 18 months. The ones I saw who overcame their debt all had the following in common:

  • The accepted that they had a debt problem
  • They sought professional help from a financial adviser or debt counsellor
  • Together with financial adviser/debt counsellor, they jointly developed a debt reduction plan
  • They were committed to the debt reduction plan
  • Even during difficult times, they persevered with the debt reduction plan and stayed in constant contact with the financial adviser/debt counsellor.
  • After overcoming the debt problem, they committed to use debt wisely by spending in line with their monthly budget drawn with the help of the financial adviser/debt counsellor. That is, they adopted the discipline to spend less than they earn!

*This article first appeared in Indwe Magazine

What’s the best advice you ever received that helped you tackle your debt?

You might want to read these tips for couples on managing their money.