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Out of Work? Here’s What to Do about Debt and Retrenchment

There’s no secret that most South Africans rely on debt to make ends meet every month. Almost 80% seek expensive unsecured loans to meet monthly financial obligations, and 84% with short-term debt want to access money ahead of payday to fulfil repayments, shows a PayCurve survey. https://www.businesslive.co.za/bd/national/2020-08-18-most-south-africans-rely-on-debt-to-make-it-through-the-month/

Worst of all, many South Africans have to put up with increasing debt for daily living – credit cards, retail accounts, personal loans etc. – and no income to support the heavy load.

You may ask, what are your debt management options once you get retrenched, with no upcoming payday and drowning in debt?

Option 1: Cover the shortfall with credit insurance or UIF

A credit insurance policy is designed to protect borrowers in the event of unemployment, disability or death. It is an excellent option to have if you are struggling with debt under retrenchment. The policy usually covers the repayments for up to six months, depending on its terms and conditions, while you search for new employment.

Alternatively, you may have taken a separate retrenchment cover or a similar policy during your employment to ensure you can settle your debt under retrenchment. If you’ve contributed to the unemployment insurance fund (UIF), for example, you are legible to apply and make use of these payments to fulfil debt obligations.

What to do:

  • Always enquire first if you have any credit insurance linked to your loan(s).
  • Check whether the unemployment fund or retrenchment cover can contribute towards paying off your instalments.
  • Chat to a debt counsellor at ezDebt about exercising this option.

Option 2: Take advantage of payment holidays

Here’s a frequently asked question when facing debt and retrenchment: can you freeze debt instalments or postpone repayments until better days?

Yes, you can. There is such a temporary reprieve known as a payment holiday. Financial institutions defer debt repayments for a set period, usually up to three months, to provide temporary relief for the indebted.

Payment holidays can also happen in troubling economic circumstances, such as last year’s lockdown during the coronavirus pandemic. Banks granted payment holidays from April to June 2020, following a surge in job losses and financial difficulties.

Know that you need to resume the repayments after the grace period ends. You will have to pay your monthly instalment plus interest on the loan balance and end up paying more in the long run, which may affect your future budget plans.

What to do:

  • Ask your bank or financial institution if there is a payment holiday option on the type of loan(s) secured before
  • Enquire how taking a payment holiday could affect your credit score before proceeding further.
  • Speak to a financial adviser or debt counsellor at ezDebt if you need more clarity on this topic.

Option 3:  Commit to a debt review process

While the two options above may temporarily settle your debt worries, working towards paying off your debt with a debt counsellor is commendable, even under retrenchment.

A debt review process is a must for the heavily indebted who already struggle to fulfil monthly repayments, even more so while unemployed. It is a critical step to take if you can no longer pay your main creditors, and you need to protect your significant assets or risk losing your home or vehicle due to payment default.

Under debt review, the debt counsellor revises your financial situation, restructures and renegotiates loan terms with creditors. You will be liable to make a lower debt repayment that you can afford; in some cases, by as much as 50% less; therefore, you do not need to postpone or freeze instalments due to retrenchment or unfortunate financial circumstances.

Think of it as a flight versus fight scenario of handling the pressure of debt under retrenchment. While postponing may help you avoid immediate instalments (flight), it is not ideal; it comes with the inconvenience of paying more afterwards and possibly attracting a negative credit score.

With the debt review process, you are not defaulting on payments and continue to reduce your debt (fight), although it may take longer to clear it off. Nevertheless, it allows you to take proactive steps towards eliminating debt, once and for all, as long as you follow the debt counsellor’s recommendations.

What to do:

  • Be prepared to rethink your monthly budget and cut unnecessary spending to improve your financial situation
  • Commit to reducing your debt with your financial advisor or debt counsellor
  • Contact ezDebt to start your debt review process today

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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