Rising food prices, hikes in fuel prices and high interest rates are eating into the salaries of South African consumers and pushing them to turn to debt as well as credit cards to make ends meet.
Data from Experian’s Consumer Default Index (CDIx) for Q4 2023 showed that mid-to-high income South African households are finding it increasingly difficult to repay debt and continue to make use of their credit cards.
The CDIx measures the rolling default behaviour of South African consumers with home loans, vehicle loans, personal loans, credit cards and retail loan accounts.
In light of the debt situation that many consumers are in, here are some ways that they can get rid of their debt.
Debt consolidation
According to Denise Hartley, Chief Operations Officer at FNB Collections, the process of debt consolidation involves the combining multiple debts into a single loan.
This service is offered by registered financial service providers or lenders such as banks.
With debt consolidation, consumers goes through the standard affordability and credit assessment processes. The people who are successful will be allowed to consolidate all or some of their debt into a single loan with one monthly instalment over an agreed-upon term.
Consolidating your debts can help you avoid the struggle of juggling multiple repayments that have separate interest rates and initiation fees from different lenders.
“However, it is important to note that debt consolidation does not eliminate or reduce the actual debt amount you owe,” Hartley said.
Debt review
Hartley said that debt review is a statutory or legal process that provides debt relief to over-indebted consumers through a debt review process.
Debt review which is provided for in the National Credit Act 34 of 2005 was designed to assist consumers that were over-indebted restructure their debt into single and affordable monthly payments.
According to Neil van der Walt, marketing manager, DebtSafe, the debt review process helps consumers when they can’t make ends meet, to keep up with their debt payments.
Snowball method
The snowball method is when people pay off the smallest debt first.
According to Wonga, the first step to paying off your debts using the snowball method is to list all your debts from the smallest amount to the largest. Then commit to and pay off minimum payment on every debt.
Avalanche method
The avalanche method is when people pay off the debt with the highest interest rate such as personal loans and credit cards first.
Although paying off these debts may take a while, Janine Horn, financial adviser at Momentum, says it is possible if you take intentional steps to do it.
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