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How to Reduce Your Debt Under Retrenchment

South Africa lost over 600k formal jobs in the second quarter of 2020, according to Stats SA. (source: http://www.statssa.gov.za/?p=13690). In the aftermath of the COVID-19 lockdown, retrenchment became a harsh reality in many sectors, and a wake-up call for the indebted.

If you find yourself jobless and struggling to cope with debt, you need to reduce your debt under retrenchment, as much as possible, to appease creditors and free more cash for daily urgent needs. Only then you can focus on getting back on your feet.

Here’s an easy approach to reducing debt and retrenchment: revise, restructure and review, as follows.

Revise your debt obligations

Debt won’t just disappear after retrenchment. Firstly, you need to reassess all your debt commitments to identify ways of cutting down where you can, so you have enough money left for daily expenses.

Managing debt is always a good idea, but it becomes a critical step under retrenchment.

If you’ve never paid too much attention to your loan repayments, now you’ll have to go back to the drawing board and list all your debt woes – home loan, vehicle finance, personal loans, credit cards etc.

After you assess your debt’s full extent, you will have to inform all creditors immediately about your work situation, as you may not be able to honour the monthly repayments in full. You’ll then have to find a way to reduce these monthly instalments to afford the repayments.

Yes, you may be able to fulfil some of the debt repayments under retrenchment thanks to approved UIF claims, retrenchment insurance policies or credit life insurance. This may take some of the debt burdens off your shoulders, at least partially and temporarily.

In the best-case scenario, credit life insurance will pay up to six months to ensure that you are not defaulting on repayments while you get back in the job market. In the worst case, you’ll find yourself with a severe shortfall, still drowning in debt, and in need of a long-term solution to debt under retrenchment.

Restructure your loans

Secondly, think about restructuring your short-term and long-term loans to minimise debt repayments under retrenchments. Restructuring your debt is necessary to reduce the repayments considerably to a level you can afford.

It means reducing the amount you have to pay back your creditors monthly. Generally, you can do this in two ways:

  • Renegotiate interest rates to lower the monthly repayment
  • Increase the loan repayment terms with the creditors

You’ll need to follow a restructured debt repayment plan to ensure you can pay back and reduce each of those significant debts that take a large portion of your salary, e.g. property bond, vehicle finance or maxed-out credit cards. This is the only way to protect your house, car and assets when dealing with debt under retrenchment.

Go for debt review

Thirdly, consider undergoing a debt review process, also known as debt counselling, to reduce all your debt without the hassle.

Debt review is a legal initiative introduced by The National Credit Act (NCA) to ensure consumers can eventually get out of debt, particularly if they are struggling with paying timely or in full.

If you are over-indebted as most South Africans who use more than 70% of their salary to finance debt, you need to become serious about engaging a debt counsellor to begin with the debt review process. (source: https://tradingeconomics.com/south-africa/households-debt-to-income)

Retrenchment while under debt review doesn’t need to be complicated, either. The debt counsellor will follow the same usual procedure to assess outstanding debt and oversee the restructured debt repayments plan. Here’s what to expect.

The counsellor renegotiates interest rates and repayment terms on your behalf with credit providers to ensure you can fulfil your monthly obligations by paying less.

You work within a new suitable monthly budget for your unique circumstances and submit only one monthly debt repayment that you can afford; no more worries about not paying your creditors.

If you have several debts that you can’t fulfil, making one affordable monthly repayment for all your debt woes will ease your finances and provide peace of mind for your family.

Debt review offers a host of benefits, including legal protection under the NCA and maintaining good standing with creditors to avoid blacklisting. The debt counsellor negotiates on your behalf, so you don’t need to communicate with the creditors.

Most importantly, you will not have to go alone through the painful process of reducing debt under retrenchment. Given the difficult situation you are facing, the debt counsellor will provide the necessary guidance on managing and reducing debt obligations to a point where you can overcome your debt burden and, in the long-term, call yourself debt-free.

Reduce your debt easily with ezDebt. Our professional debt advisers can help you reduce your instalments by up to 50% and have enough money for day-to-day expenses. All our debt counsellors are registered with the National Credit Regulator (NCR). Get in touch at www.ezdebt.co.za.

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