How to deal with your debt after the holidays

The festive season is behind us, and with the start of the New Year comes the start of a long month for many, with salaries being paid out earlier in December, and not everyone having the forethought to realise that it needs to last you until your next payday at the end of January.

Moneybags journalist Jessica Anne Wood looks at how you can get your finances back on track following the festive season.

“Every year we see an increase of about 28% on credit card spend over the December period, but with careful planning and clever management  of this inevitable increase in spending , you can enjoy your festive season without adding to your debt responsibilities,” says Chris Labuschagne, CEO of First National Bank (FNB) Credit Card.

Ian Wason, CEO of DebtBusters, South Africa’s largest Debt Management Company, notes that the company’s enquiries for debt counselling during December 2015 were up 113% compared to the same period in 2014.

Understand your debt responsibilities

“South Africans that do not have a debt management plan for 2016, need to start now by changing their focus from spending to paying off debt,” advises Wason.

While 2015 was already a tough year for consumers, Wason believes that 2016 may be even more difficult. If you have not already worked out your financial plan for 2016 yet, now is the time to do it.

There are important expenses that you have to factor into your budget, such as car, home loan and credit card repayments that should be made a priority and paid as soon as your salary enters your account, suggests Labuschagne.

In addition to these repayments that need to be made, there are other fees that you need to take into account, such as school fees. “Planning for education is vital, so ensure you have factored these into your budget,” highlights Labuschagne.

Once you have taken account of all your debt responsibilities, you can ‘stress test’ your budget to see where you can maybe afford to pay more money towards your debt, such as credit cards, which you may have used more frequently than usual over the festive season.

Don’t be tempted to fund the things you want but perhaps cannot afford at this time by taking on additional debt, such as a personal loan, stresses Labuschagne. These forms of debt can increase your debt problem, and often have higher interest rates than other forms of debt, meaning that you could end up paying more than you expected over time.

Avoid missing debt repayments

According to Rudolf Mahoney, head of brand and communications at WesBank, if consumers are struggling to make their debt repayments in the short term, such as their car repayments, they should contact their bank or loan provider and arrange a repayment plan as a short term solution until they are able to manage the normal monthly repayments again.

However, if you have found yourself in a situation where you have lost your job or are unable to meet all of your debt obligations, consumers should contact their bank immediately.

Where the situation has reached a critical point, WesBank points out that one option that consumers have is to trade in their vehicle for a more affordable option. However, WesBank highlighted: “The feasibility of trading in a vehicle will depend on whether or not the finance agreement has reached a breakeven point: the point at which the asset’s value is equal to the finance agreement’s settlement value. In cases where income has been cut, this could also be an option when combined with downscaling to a smaller vehicle, with more affordable monthly instalments.”

You also have the option to contact your bank and request to voluntarily return your vehicle, therefore cutting out the monthly repayments, placing less strain on your budget.

Mahoney notes: “This is simply a business transaction, and consumers should not be afraid or embarrassed to approach banks. We understand that sometimes there are factors that put consumers in financial difficulties that are beyond their control.”

WesBank offers the following tips to help consumers in financial difficulty:

  • Be proactive when you are aware that you cannot afford a repayment
  • Be open and honest with the bank, to ensure the reduced repayment is affordable
  • Reduced repayment structures are not permanent solutions
  • Do not avoid bills or letters of demand from credit providers
  • Avoid accumulating further debt when in a bind
  • Consider downgrading to a more affordable and economical vehicle
  • Cut unnecessary expenses from monthly budgets to avoid arrears
  • As a last resort – seek help from a registered debt counsellor

Cut down on spending and use your rewards

While cash might be tight in the New Year, try to cut down on your spending. If you have store rewards that you did not use over the festive season, use them now. Many stores, and even banks, offer rewards programmes which can be redeemed for use in buying groceries and toiletries, school supplies for your children, and even transport costs, such a fuel.

Take note of your spending

“If you use cash, it is unlikely that you will keep each slip for each of your purchases and potentially lose track of your spending. However, if you swipe for every purchase, at any stage you will be logged into one of the various electronic platforms and be able to check your transaction history,” reveals Labuschagne.

By being able to track your spending through your transaction history, it makes it easier to identify what you have spent on each purchase, and where you are spending your money most. This could help you identify the areas where you are able to reduce your spending.

According to Labuschagne, not only is swiping your card more convenient that using cash, but it can be cheaper too.

Manage your credit

An easy way to make sure that you do not fall further into debt is to decrease your credit limit with your bank. If you have a large credit limit but do not use it, requesting that it be decreased will ensure that you are not tempted to over spend with money that you do not have.

“FNB customers can adjust limits on any of the self service offerings,” reveals Labuschagne.

Live within your means

January is often a month where people have to tighten their belts after splurging over the festive season. Make sure that you are not spending more money than you have, and if need be, try and boost your income.

There are several ways that you can boost your income, such as selling things you no longer need via websites such as Gumtree or Bid or Buy. Money 4 Jam also offers people the opportunity to make extra money by doing small jobs, these jobs can include anything from answering a survey to taking a photo. On average the jobs from Money 4 Jam take about five minutes to complete.

Another important thing to keep in mind, not only in the New Year but throughout the year, is to resist the pressure to buy the latest model TV, cell phone or any other device or item that is popular that you probably don’t really need. While you may be able to finance these via a credit card or loan, it will end up costing you more than the item is worth, possibly leaving you in a worse debt situation.

Prepare for tougher times

While January may be tough due to overspending over the festive season, you need to be prudent with how you manage your finances and try not to take on additional debt. According to Wason, the debt stress that some cash strapped consumers are facing is showing no signs of relief.

Middle and upper income earners need to be aware of the potential increased living expenses they may experience during the year and factor these into their monthly household budget.

“These consumers have houses, cars and ample monetary commitments, such as school fees, mobile contracts, etc. Any additional expenses on the back of the festive season spending spree and already maxed out credit facilities could be the tipping point for many South Africans, where they will no longer be able to service their financial commitments”, says Wason.

In addition to these increases, repo rate hikes are expected this month, as well as electricity rate increases, water restriction penalties and food price increases as a result of the ongoing drought.

“It has become vital for consumers to take control of their personal finances by adopting responsible habits with their money. Adding new debt to your monthly financial commitments should be avoided. Paying off debt must be the number one New Year’s resolution for all credit active South Africans,” emphasised Wason.