Proudly sponsored by

I’m R205k in debt. How do I become debt-free?

You may need to consider applying for debt counselling.

Before Covid-19, I had been self-employed since 2018. I had a business that needed a big cash flow, and constantly; therefore I took out loans to keep the business running and the monthly instalments were affordable for me to pay. But due to the lockdown, I lost my business and am now working as a receptionist where I get less than half of what I made working for myself. All my instalments are falling behind as I cannot afford them.  

What are your thoughts? What would you suggest I do to become debt-free? 

Some details:

  • My salary is R5 000 per month and I do not get any other income;
  • I work 48km from my house; my fuel expense is R2 000 per month;
  • My contribution to the house is R1 500 per month; and
  • My debt totals R205 129.
  Profile         Mail

What would you suggest I do to become debt-free? 

In terms of reducing your debt, your options are fairly limited due to the constraints of your salary and monthly expenses. Your remaining debt is R205 129 of which R200 129 attracts interest at a rate of 23%.

The annual interest on your remaining debt is approximately R46 029.67. This amount far exceeds your annual discretionary income of R18 000 (R1 500 per month).

Unless you are able to increase your monthly income or significantly reduce your monthly expenses, you appear to be in a debt trap. Sadly, many South Africans have found themselves in similar situations due to the fallout of the global pandemic.

You may need to consider applying for debt counselling, where you can be placed under debt review. Unfortunately, this may have a negative impact on your credit score, and it could potentially make it difficult for you to secure credit in the future. However, it may give you the ability to consolidate your debts while paying a reduced monthly instalment towards your debt.

The benefits of applying for debt counselling

A debt counsellor may place you under debt review which is a legal process where you will have one monthly payment, typically of a reduced amount and potentially over a longer period of time. During this period, you have legal protection from creditors under the National Credit Regulator (NCR).

To learn more about the benefits of debt counselling, read this article. 

Selecting a debt counsellor

There are a number of debt review institutions that may be able to assist you going forward. 

When selecting a debt counsellor, ensure that they are registered with the National Credit Regulator (NCR). You can find a list of registered debt counsellors on the NCR’s website.

According to an article on DebtBusters titled ‘How to choose the best debt counsellor for you’, there are five points to be aware of:

  1. They must be well-informed and registered
  2. Their fees must be in line with the NCR
  3. They must make use of a reputable payment agency
  4. They must protect your information, and
  5. They must have a reputable industry footprint.

Do you have any questions you would like answered by registered financial planners?

SUBMIT YOUR QUESTION SIGN UP AS AN ADVISOR
Moneyweb Insider INSIDERGOLD

Subscribe for full access to all our share and unit trust data tools, our award-winning articles, and support quality journalism in the process.

Choose an option:

R63 per month
R630 per year SAVE R126

You will be redirected to a checkout page.
To view all features and options, click here.

A monthly subscription is charged pro rata, based on the day of purchase. This is non-refundable and includes a R5 once-off sign-up fee.
A yearly subscription is refundable within 14 days of purchase and includes a 365-day membership.

Click here for more information.

COMMENTS   17

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

Do not go for debt counseling, it’s a just another scheme designed to enrich more people, while simply extending your debt for a much longer time. The whole process simply gets added to your existing debt, while you have a lower payment, the payment period easily gets doubled, almost being in this trap for pertuity

If you have no significant assets in your name, I would declare bankruptcy, have the debt written off, be be blacklisted for approx 5 yrs

I cannot think how anyone would voluntarily put themselves through debt counseling, as the system simply is not designed to help you but only those giving services. Ever wondered why debt counselors advertise so heavily for their free services?

Nothing is ever free. Educate yourself and take charge

Whilst I agree with most of what you said, to declare bankruptcy or to go into voluntary sequestration can hamper your chances of getting a new job in future, especially with big corporates who requires you to be in good financial standing.

When you go for debt counseling, companies cannot shy away from giving you a job but if you have been sequestrated or declared bankrupt it may insinuate that you cannot be a reliable employee and that your financial position could possibly hamper your work-life.

Been there, done that. Best advise is MountainBoy. Let your creditors take the knock on the chin. They have insurance & tax breaks as allowance for bad debt & will recover more selling it to a recovery law firm with call centre agents.

As long as your rent is being paid, go to ground. Take a 3 year “pay cash only” holiday from your debts. It’s called ‘prescription’.

Debts fall away after 3 years at the Credit Bureaus – as long as you make no acknowledgement of debt nor make any attempt to pay.

Tough but doable – and you’ll learn to do without credit.

And companies won’t hire you regardless of whether it’s a judgment or debt review – how would you know either way?

Less painful & cheaper by skipping the debt counselling process..

Prescription would not apply as soon as the credit providers interrupt the 3 year period by taking the matter to court and getting a judgement which they are faster to do these days.

The credit providers will either serve papers on the legal domicilium address and get a judgment (which can later be opposed or fought over by expensive lawyers at great cost to the consumer).

Those judgments are in effect for 30 years.

Alternatively, you will find the credit provider will sell the debt to people who are motivated to find the consumer even if they “go into hiding”. A few minutes on social media and they will locate them or they will run a track and trace on mobile bills or other similar things. Hiding is hard these days.

Even where debt does prescribe you can still be subject to harassment and have to offer prescription in defence should they track you down years later and try get you to pay etc. (even when you are in the right in regard to prescription).

To sequestrate the consumer would need roughly 18 – 20% of the debt in cash to pay all in one go (or assets to that value) and then cover fees associated with the process which can amount to many,many thousands of brands. This may not be a practical solution.

By comparison, the +-R75 monthly fee they will end up paying the debt counsellor while their financial situation improves is very reasonable.

1) spend less on entertainment
2) don’t eat out. switch to cheaper and healthier foods.
3) drive a cheaper/smaller car and spend less on fuel
4) reduce your insurance premiums.
5) make a once off economic sacrifice for 1 month as a head start to reduce debt
6) in an emergency let your domestic or gardener go and do the work yourself
7) switch your geyser off in summer

All good in Theory but on R5000p.m. I have to agree with mountainboy : Debt Counsellors simply “stretch your debt whilst enriching themselves (they dont work for free).
The Guys who provided the credit took the unsecured risk , so let them bear the consequences .

At around +-R75 the debt counsellor’s monthly fees are not going to be ridiculous or unreasonable to get an expert in your corner.

I would hesitate to call this Debt Counsellors trying to enrich themselves unfairly or anything.

Sorry to hear about your financial troubles. Just my thoughts:
1) don’t give up and resign simply because you feel the money is not enough. Stay ‘in the market’ as it is easier to negotiate your next salary if you already have a job. And it also looks better if you are already employed.
2) R2000 on commuting must be addressed – if you are not currently looking for a better job, move closer to where you work.
3) 24% interest is ridiculous – if you are able to, move your loan to a lower interest loan with a reputable bank.
4) pay your loans with the highest interest first.
5) if by any means possible; save R500 a month in a separate account for emergencies. This will prevent a visit to the loan sharks if you have an unexpected financial emergency.

but if he is in so much debt, with such a small income, isnt that a classic case of reckless lending, meaning it gets cancelled for being illegal?

The credit was granted when the consumer had more income so probably not (unless the banks/credit providers missed a bunch of steps along the way).

Remember that reckless credit does not automatically get written off. Many times it is simply moved to the back of the payment queue and can be settled once other debts which were not reckless are paid off. After all the money has been spent it is fair to pay back what you agreed to (but obviously in a reasonable and manageable manner is best).

Most people FORGET that all their policies go up at 10% – 15% a year. Many of those policies (Life, Car, Funeral, etc) should not go up. You need to fix both sides of this problem NOT just the debt.

Contact everyone you owe money and tell them you will pay them R50 or even R5 per month. You state that you are willing to pay and not defaulting want to pay them but can only afford R5 per month right now. Nobody can take you to court for not paying because you are making a contribution willingness to pay back everything eventually. This is a simple concept and it works…. no Debt counseling needed and all the stress disappears and you keep your good name. As kids my mom did this when my dad lost his job and we never had a single problem with anyone owed money and her record was not tarnished. However dont forget RULE number 1 ……. Do not spend money you do not have and every month put 10% aside immediately to use for money making opportunities.

Unfortunately no one has any good advice. The debt is stuck with you. Make regular payments. Keep money for your own well being. Don’t worry if your not paying the full amounts. If they want to go to court then so be it. Get proper advice and don’t make any deals let the judge decide what is fair and live your life. It’s like having HIV. If you let it be it will turn into full blown aids just take your meds and live a healthier lifestyle so you need a healthier financial lifestyle and nothing lasts forever only the tough lasts.

Don’t ever think about debt review. Your debt is too big for your monthly salary to cope with. So, debt review will not help at all. Let them blacklist you while you keep your job. Being blacklisted is far much better than being under debt-review. Move closer to work to cut those fuel costs. 40% on fuel is too much.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

INSIDER SUBSCRIPTIONS APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING PORTFOLIO TOOL CPD HUB

Follow us:

Search Articles: Advanced Search
Click a Company: