How to avoid the debt spiral in the face of SA's junk status downgrade

In the wake of the downgrading of South Africa's sovereign debt rating to sub-investment grade (so-called junk status) by the world's foremost credit rating agencies, SA consumers are bracing for a tough time ahead in terms of their finances, and rightly so.

date: 19/04/2017Author:

What does junk status mean for SA consumers?

Being downgraded to junk status will force up the cost of borrowing (debt financing is the fastest growing expense in our national budget) and will see another slide in the currency. This is because most foreign institutions are not allowed to buy or hold government debt if the country has junk status. If you have a mortgage bond or drive a financed car your monthly payments will rise. For example: a bond of R500 000 would cost R837 more per month if interest rates increase by 2.5%. That’s a substantial increase if you’ve barely been making ends meet in the first place.

Increased interest rates lead to poor lending decisions

Moreover, due to the weakening rand and rising interest rates that have been plaguing cash-strapped SA consumers over the course of the last ten years, there are many who have become so desperate to cover their monthly expenses that they go so far as to pawn their cars to pawn brokers for personal loans. According to Nthupang Magolego, the senior legal advisor at the National Credit Regulator, the pawning of personal assets is technically allowed under the National Credit Act, but that it is not advisable since the risk of losing that asset is very high if the loan is not repaid in the agreed-upon timeframe.

How to avoid the debt spiral

According to a recent World Bank index, South Africa is one of the most indebted countries in the world. Recent findings by the National Credit Regulator show that SA consumers are R1.66 trillion in debt, owing an average of R274 000 per person to various creditors. This debt is mostly in the form of mortgages, vehicle repayments, clothing accounts and overdrawn credit cards.

The most important thing to remember is that the answer to debt is not more debt. Debt counselling has been put in place to help consumers who feel incapable of managing the monthly repayments. If you find yourself in this position, your first step is to get a credit report and a professional credit analysis to understand your debt situation in its entirety. Once it has been determined that you are indeed in over your head, a reputable debt counselling agency like Libertine Consultants will be able to advise you on your options and assist you in contacting your creditors to tailor a manageable monthly repayment plan.

Get in touch & stay informed

For more information on credit analysis, debt review and credit clearance once your debt has been repaid, get in touch with a Libertine Consultants representative. We’re here to assist you every step of the way so you can clean the slate and thrive financially.

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