South Africans are feeling the financial pinch of the ongoing uncertainty in the local and global economy as well as increases in fuel prices and rising interest rates.
Consumers are borrowing money to keep going until the end of the month, which can lead to debt if they don’t have finances for the repayments, according to the Momentum Unisa Consumer Financial Vulnerability Index Q1 2022.
This perpetuates the debt trap, with South Africans using as much as a quarter of their monthly income on paying back debt.
A debt trap is a situation where the amount of debt owed gets out of control. This situation arises when consumers spend more than they earn because of poor financial planning. This situation can be a never-ending cycle if the correct steps are not taken to break the cycle.
Here are six ways to avoid or break the debt trap cycle:
- Ensure that monthly debt repayments are made on time; even a payment that is 24 hours late can be bad for a person’s credit rating.
- Pay the minimum instalment required.
- Take care of your most “expensive” debts first because these are the accounts that generally charge high interest rates.
- Close accounts not in use as credit providers assess all of the credit accounts on record, even the ones that are not being used.
- If the consumer is able to, they should pay more than the minimum payment on accounts to improve your credit standing.
- Don’t ignore a letter of demand; instead, be proactive and take the appropriate action.
If you cannot make payments on overdue accounts, speak to a debt counsellor who will negotiate on your behalf for revised terms on settling outstanding debt.
IOL Business