How to manage and, eventually, say goodbye to debt

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BOITUMELO NTSOKO: Debt remains a significant challenge for many households. According to the latest Eighty20/XDS Credit Stress Report for the fourth quarter of 2022, the current balance on all loans for South Africa’s credit-active population stands at R2.28 trillion. The number of loans in arrears increased by 252 000 quarter on quarter to R18.7 million. It’s obvious that many South Africans are struggling with debt, which can have serious consequences on their financial wellbeing.

In this episode [of Money Rules], I’m joined by Nastasha van Rensburg, who is a wealth advisor at attooh! Financial Wellness. We’ll be discussing all things debt, as well as other tips and insights that can help individuals and households take control of their finances and get back on track. Welcome, Nastasha.

NASTASHA VAN RENSBURG: Thank you so much, Tumi, for having me and for inviting me to speak on your podcast. I’m very excited.

BOITUMELO NTSOKO: Nastasha, could you maybe just give us some of the reasons why people accumulate so much debt?

NASTASHA VAN RENSBURG: Well, Tumi, one of the reasons, in my opinion, or let’s say three reasons are usually due to necessity: emergencies arise, things break, or things happen. Life happens and then people start accumulating so much debt that they end up in a hole that they cannot get out of.

The other thing is I think it’s often owing to a lack of self-control with things like credit cards.

We live in an era of instant gratification so a credit card can often be a big problem, accumulating a lot of debt.

And then also a loss of income, things like Covid-19, and now we have things like load shedding which definitely leads to a loss of income for a lot of people.

BOITUMELO NTSOKO: What are some of the warning signs that someone may have too much debt and needs to take action?

NASTASHA VAN RENSBURG: I think some of the tell-tale examples that your debt has become too much is your consumer debt. Things like your credit cards, your medical bills and your personal loans total half or more of your income. And then obviously also when creditors start calling you to collect payments, and you are unable to meet the payments.

When you are able only to make minimum payments on credit card bills, or make none at all, I think that’s when you know your debt has become too much and you need to take serious action.

BOITUMELO NTSOKO: Now, one of the options for addressing debt is debt consolidation. When is that the best option for someone struggling with multiple debt?

NASTASHA VAN RENSBURG: I think we need to say what debt consolidation is.

Debt consolidation works by merging all of your debts into one loan. That makes it a lot easier for people who have a lot of debt.

Obviously, depending on the terms of your loan, debt consolidation could help you get a lower monthly payment to pay off your debt sooner, increase your credit score or simplify your financial life.

Usually debt consolidation works in three steps. You take out a new loan and then you use that new loan to pay off your old debt.

Something that people just need to keep in mind with debt consolidation is interest rates; make sure that you aren’t paying more on interest rates on your new loan than on your old debt.

BOITUMELO NTSOKO: Another option is debt review. How does it work and when should someone consider it?

NASTASHA VAN RENSBURG: Debt review is also known as debt counselling. It was introduced in 2007 with the National Credit Act, and it was introduced to assist South Africans struggling with debt obligations and with repayments on things like their houses and cars and credit cards and accounts.

What it means when you are under debt review is you are being reviewed by a debt counsellor. That’s someone who reviews your income and your expenses, and they determine that you are over-indebted or debt stressed. Then the process is usually regulated by the National Credit Regulator.

So once the debt counsellor has determined that you are over-indebted or debt-stressed, they usually help work out a repayment plan for you; that’s usually when you are placed under debt review, when they help you.

BOITUMELO NTSOKO: And could you please share some of the benefits and drawbacks of debt review?

NASTASHA VAN RENSBURG: When it comes to debt counselling I think one of the main benefits is that then your creditors cannot take any action against you, because you are under debt review.

There’s also no record of having undergone debt counselling, and there’s also just one monthly repayment to be made. So it simplifies the whole process a lot for the person who is in debt.

The debt counsellor will also help you cut costs and save money. Then of course you also won’t get bothered by all the creditors demanding payment, because they will know that you are under debt review and the situation is being handled.

BOITUMELO NTSOKO: And what are some of the drawbacks?

NASTASHA VAN RENSBURG: Well, one of the biggest drawbacks would probably be the fact that you are not allowed to [take on] any more credit while undergoing debt counselling. I think for a lot of people that might often be a big problem. There are a few fees that you’ll have to pay, so it’s going to cost you a little more money. But in the long term I think if you’ve come to that point it doesn’t really matter paying a small amount for someone to help you really get your things back in order.

BOITUMELO NTSOKO: And Nastasha, are there any other strategies that people can use to reduce their debt?

NASTASHA VAN RENSBURG: Yes, I would definitely say ‘develop a budget’. Track your expenses, don’t [take on] any more debt. The moment you start [taking on] debt it’s a vicious cycle. Pay your bills, check your bank statements carefully, and make sure you aren’t paying excessive bank fees.

And then I think one of the best ways is to make sure to pay off your high-interest debts first, so you can kind of eliminate those from the beginning.

BOITUMELO NTSOKO: And what advice would you give someone who is struggling with debt but doesn’t know where to start?

NASTASHA VAN RENSBURG: I think the best thing to do in a situation like that is to ask for help.

Like with many things, if you are unable to do something, ask for help.

So find a credit counsellor or speak to a wealth advisor, someone who can really help you understand what the best way would be to get out of debt. I think professional advice in a situation like that is your best option. So ask for help.

BOITUMELO NTSOKO: Nastasha, addressing debt seems like a very long process. How can someone stay motivated and committed to paying off their debt, especially when the progress seems slow?

NASTASHA VAN RENSBURG: I think one of the main things is that you want to get your financial freedom back. Being under debt review or undergoing debt counselling can be such a stressful situation, and

I think the main goal that people should just keep in mind is that starting by paying off a little will help a lot in the long term.

As with compound interest, if you just start somewhere, even with just a little, it starts to accumulate.

BOITUMELO NTSOKO: Once someone has their debt situation under control, how can they prevent themselves from falling into that trap again?

NASTASHA VAN RENSBURG: One of my favourite quotes is:

‘Don’t save what is left after spending; spend what is left after saving.’

I think it’s such a cute, quirky way of saying be sure to save money and not only spend money. It’s that mindfulness towards your finances that is so important, things like an emergency fund.

I often refer to the emergency fund as my c’est la vie fund, the ‘life happens’ fund, or that’s life – to make sure that if things arise in the future you are covered.

A lot of financial advisors would recommend saving at least up to three months of income or things like that. With Covid-19 we saw a lot of people losing their jobs and income security. So I would recommend saving up to at least six months. And then definitely just get a budget.

One of my other favourite quotes is by John Maxwell: ‘A budget is telling your money where to go instead of wondering where it went’.

So I think with that mindfulness, be sure to know where your money is going, where you are putting it, and also to know exactly what debit orders are going off [your bank account] at the end of the month, what credit you have. It’s that thing of just being accountable when it comes to your finances.

And then of course speak to a wealth advisor, someone who can truly help you and make sure that you’d never ever end up in that situation again.

BOITUMELO NTSOKO: Nastasha, thank you so much for joining us on this episode and sharing these valuable insights.

NASTASHA VAN RENSBURG: Thank you, Tumi.

BOITUMELO NTSOKO: That was Nastasha van Rensburg, who is a wealth advisor at attooh! Financial Wellness.