Mail & Guardian
Mail & Guardian

Phone your bank now

3 min read

The cost of debt has gone up by 36% in two years. A household earning R35 000 a month would have qualified for a R10 000 monthly mortgage repayment two years ago but today will be paying R13 600 a month. You would have to earn R5 000 more a month before tax to meet this obligation.

Combined with higher fuel and food prices, middle-income earners have hit a wall — and further interest rate hikes have not been ruled out. These higher interest rates are expected to last until the middle of 2009 when rates are expected to start to decline.

That is a long time to wait if you are already struggling to meet repayments. Banks are urging distressed customers to call them to discuss ways to restructure their debt rather than leaving it too late.

It is at times like this that consumers can fall into a debt trap that could turn out to be impossible to escape. Taking responsibility for your finances and asking for help now could be the best financial decision you make.

Here are five steps to survive the next 12 months:

  • Take responsibility for your finances. Go through your budget and see where you can cut back. If you find ways to save money, don’t spend it — pay off your debt.
  • If you have a relationship manager at your bank, contact him or her to discuss your budget and debt. If you do not have a relationship manager, each bank has its own call centre where you will receive assistance to manage your debt.
  • If you are in financial difficulty your bank will restructure your debt. First of all it will advise consoli­dating all your debt into the cheapest debt vehicle, which is usually your home loan. It can also reduce your monthly repayments through ­interest-only repayment plans or it can provide a payment holiday.

    • Remember, the banks do not want to take your house away — it costs them a great deal of money. If you show a willingness to take responsibility for your debts, banks will work with you.

  • Start cutting off all access to credit. Don’t use debt restructuring as a way to continue to spend. It is critical not to start using credit to fund your day-to-day living expenses. Galia Durbach of FNB says once you have consolidated your debts, close all your credit lines. Don’t use consolidation as a way to access more credit.

    • So, once you have paid off your store cards and credit cards by moving those debts to your home loan, cut them up and throw them in the bin. As you pay off your overdraft each month, ask your bank to reduce your overdraft limit in line with your payments.

  • Save in a fixed deposit. Common financial advice is to save additional money into your access bond. However, for many people the temptation to withdraw that money is too great. The best move right now is to cancel your access bond so that you cannot get at the equity building up in your bond as you repay your mortgage. Dubach recommends saving in a fixed deposit or notice account — it will prevent impulse buys.

    • Make that call
    The banks have set up call centres where you will receive advice on how to handle your debt. Don’t wait until you have defaulted — find a solution before then.

    Absa ‘debt repair”
    0860 356 356

    Nedbank debt counselling
    0860 109 279

    FNB financial advice
    0860 111 005

    Standard Bank call centre
    0860 123 000