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Wanting to live your best (debt-free) life?

Read on for steps to financial freedom.

NOMPU SIZIBA: According to the National Credit Regulator, outstanding consumer credit stands at around R1.9 trillion and, no doubt, a little extra was added to that figure over Black Friday and the festive season in 2019. Consumers have been under financial straits for some time, due in part to a lacklustre economy and job losses. But if you are in a financial bind, you are over-indebted, and you don’t know whether you are coming or going, these problems are not insurmountable.

Well, to share some tips on how we can win on the financial management front in 2020 I’m joined on the line by Carla Oberholzer, a debt advisor at DebtSafe. Thanks very much, Carla, for joining us on the show. Last year it was noted that there was a growth trend in unsecured lending, with reports that consumers were turning to credit for basic day-to-day expenses. Well, we know that things have been tough, but no doubt the festive season will have added to this.

CARLA OBERHOLZER: Yes, certainly, Nompu. If we look at the latest National Credit Regulator’s statistics, over 25 million credit-active consumers are out there, of whom more that 10 million have impaired credit records already – and that is without taking December into account. So it is very sad reading.

NOMPU SIZIBA: Let’s speak to that consumer who feels like they are in a bit of a financial pickle, in a situation where there is very little discretionary income left by the time they take care of their debts. What do they need to do to work towards an improved balance sheet?

CA RLA OBERHOLZER: First of all, I would like to tell consumers out there they shouldn’t be too hard on themselves. We have to think of something new and to say it’s ‘go time’. It’s time for intervention if one’s financials are not portraying and reflecting what they are supposed to – and what should one do about it?

First of all, we have to budget properly; that comes when we look at our income. That’s basically our salary amount after deductions, tax and UIF. And then we have to minus our investments – that would be long term like, say, a retirement annuity or educational savings for ourselves or our children. And then minus expenditures – our debit orders going off, service agreements, credit agreements, standing payments.

Then, if you see that you have a minus amount left at the end of the month, that is when you see your red alert. If it’s a surplus, that’s great, but what do we do if we see that minus and that alert sign at the end? We have to make alterations, and we need to do so urgently. That’s basically when we take stock of our income, and say, “Listen, are there any unnecessary expenditures or avoidable costs that I can take care of or cut out?”

These days I would advise the consumer out there to take the latest bank statements, the previous three months, get out that magnifying glass and look things in the eye, and take out your calculator and let it show whether the things you are currently paying for are indeed necessary. Identify the costs that should have been avoided – say, that gym contract, that pay-tv you never use, etc and cut them out.

Avoidable expenses can also be small things like takeaways or other luxuries like excessive shopping sprees. I heard an expert saying. “Why do you buy more clothes if you already have clothes? Why do you buy branded items when you can’t really afford them?” These are hard questions to ask, but we have to look in the mirror and say, “Listen, I have to turn my financial situation around in 2020, so how am I going to get my budget into a surplus or a plus? I have to either get rid of my debt or I have to boost my income in a way. But that’s not always possible. You can try, but rather get rid of your debt first.

NOMPU SIZIBA: It might be difficult for people, especially if it’s been a way of life for them. But presumably limiting or completely reducing the use of a credit card is one sure way of beginning to deal with one’s debt problems?

CARLA OBERHOLZER: Yes, definitely, Nompu. All psychology experts say that it takes 21 days to get into a new rhythm or a new money psychology, but you can train your brain. So I’d really like to encourage the consumer out there to start small with those small habits, and try not to use your credit card for living expenses – when walking in the shopping mall, buying groceries, or when you go to add some fuel to your car. Each month pay off your debt bit by bit – and you can start with what I call the snowball method. First pay off that store card with the lowest instalment or the lowest amount of debt first. And then, later on, move to your advances or interest-rated debt.

Sometimes a lot of South Africans can be very intelligent and say, “No, I want to tackle that credit card, because that has been the major problem for me in 2019. So I want to tackle that credit card first.” You are more than welcome to do that, but it’s a bit more difficult. I’d rather stick to something I can tick off on my list and say, “Oh, look, I’ve paid my store card off, and now I can move that R200 instalment to my next step and pay that off.”

I think it’s about being proactive and keeping your mini-economy going instead.

Yes, we have to try and make our mini-economy stable and make it work, and we have to be sure that we set an example for those youngsters around us.

We forget that our kids and the youngsters actually see our behaviour and our actions and they only see you take your card and go to the ATM and withdraw cash, or just use your card and a pen – but there is no idea where money comes from. I think it’s very, very important to include our loved ones and to say,” Listen, this is what a budget is, and we have to work together to maintain February’s budget, or March’s budget.”

NOMPU SIZIBA: Being in a financial bind is not insurmountable, is it? There are a lot of people out there who can help people who are in difficulties. Just tell us about the benefit of getting advice from a financial planner or advisor.

CARLA OBERHOLZER: Definitely. Getting out of debt is not a one-man show, and there are financial professionals out there. I think, Nompu, start with what is familiar, and what your family and friends would say; you can ask for advice or a recommendation, because it’s nice to walk within your trust circle and it’s sometimes difficult to judge with a click of a mouse and [trying to] find somebody reliable. I think that’s where we have to start. There are financial planners, there are advisors, there are brokers if you are looking more for insurance-type help. Or even your banker can advise you on products that are available, not only for sales, that is not the best way to go, but if they listen when you say, “I really need help, I need to get out of my indebted situation – what would be the best option?”

Obviously in worst-case scenarios, if you receive a form of income the National Credit Regulator recommends something like debt review. I have to be honest, it’s not the easiest of processes. You have to think thoroughly about this. But if you are on the brink of losing your car or your house, your assets, then it is an option to consider. And you can do your research rather than just jump into something. Make sure that you do your research well, ask advice all around. You can ask by email or phone, whichever communication method you prefer.

You are the client, you are the consumer, you can actually be in control of your finances and ask around and be sure that you make the best choice for your finances.

NOMPU SIZIBA: In the debt-review process, just give us a sense of what’s involved, especially that issue that your assets are protected while you are under debt review.

CARLA OBERHOLZER: Definitely, Nompu. When you go under debt review and the court has declared you really indebted, the debt review process can indeed help you. You are referred to a regulated debt counsellor, who works with the National Credit Regulator. They are not allowed to ask the fees that they want. It’s regulated and in the process your car and your house, are protected.

I just want to mention that you need to receive a form of income to do that. The thing is, when it comes to a debt counsellor, they take care of the overall [situation] and actually assist you with budgeting properly. During that process, I just want to inform the consumer, you are not allowed to take out more credit. You have to basically cut up those credit cards. But it’s a real rehabilitative process, so in the long run it’s good for you and your money, and in the long run you’ll be happy.

The process takes a few years, depending on the amount of debt that you’ve incurred. But they structure it in a plan, and then they also negotiate with your creditors behind the scenes and work really hard to get the lowest instalment. There are administration fees and everything, but they work out an amount – and it’s obviously less than you are paying right now, which you can’t afford. Then you pay off your debt within a few years. It’s not a quick fix at all.

NOMPU SIZIBA: Fundamentally, and in conclusion, when people do go back to having a clean bill of financial health, the key will be for them not to fall back into those habits that led them into difficulties in the first place.

CARLA OBERHOLZER: Nompu, I can tell you of clients who said, “I’m never going through this again.” But then we also end up having clients returning to the debt-review process, which is actually staggering. You have to control your financial environment, and you have to learn from the process and not fall into the debt trap. Sometimes you have marketing gimmicks or paper trails that can lure you into something. You have to be really careful and you have to stand firm, and make sure that from 2020 you are going to take baby steps, but you are not going to fall for those marketing gimmicks. You are not going to fall into the debt trap again; you want to set an example for your children and for those around you. And for yourself, you are going to have the accomplishment of no financial blues in the future, only financial gain – and then have a long and happy financial life for you and those around you.

NOMPU SIZIBA: Our thanks to Carla Oberholzer.

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