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Retrenched and Can’t Pay Debts? Know This Before Taking a Payment Holiday

If you cannot make your monthly debt repayments, perhaps taking a payment holiday is the lifeline you need after retrenchment. Should you go for it? How long can you set aside debts when you have no income? We answer these questions and more to help you deal with increasing debt and retrenchment.

What is a payment holiday?

You may have heard about a payment holiday during last year’s height of the Covid-19 crisis, but this financial feature is not new at all. Banks and credit providers frequently allow borrowers, upon prior agreement, to miss the occasional monthly repayment on specific loans and mortgages.

In a nutshell, payment holidays give the borrowers a short reprieve from the inability to repay the loans if their financial circumstances suddenly change during the credit lifetime.

When can I ask for a payment freeze?

Generally, you can access this option if you can’t fulfil your regular debt repayments due to any of these reasons: financial hardship, sudden loss of income, retrenchment or unforeseen economic crisis.

Sometimes, creditors may offer payment holidays in exceptional circumstances. Case in point: during the Covid-19 pandemic, the banks decided to support the indebted South Africans with an initial payment holiday for the hard lockdown months, April to June.

However, not all types of loans are eligible for payment holidays. Always enquire first with your lender or financial institution. Still, there are other ways to tackle mounting debt besides deferring payments for a while.

If you are seriously struggling and the creditors are no help, consider restructuring the debt repayments and seek debt counselling before it’s too late. ezDebt’s counsellors can advise on your best options to reduce debt painlessly.

How long can I refrain from paying my debts?

Generally, creditors want you to forfeit repayments for no longer than three months, time that you can employ wisely to look for another job, find other sources of income and get back on your feet.

If three months are not enough, creditors may offer to extend the payment relief or help you restructure the repayments. This is not a guaranteed result and depends on the individual credit profile, the lender’s willingness to accept the extension and your ability to negotiate the new terms.

If you’re not successful and time is critical, seek professional help with debt counselling or debt review, a highly-regulated process approved by the National Credit Regulator (NCR). Our debt advisers at ezDebt can assist your family promptly and discreetly.

What happens if I postpone debt repayments?

Taking advantage of payment holidays means postponing the payments for up to three months. While you are not paying the monthly instalments short-term, putting repayments on hold comes at a higher cost long-term. You will pay more to service the debt in the end.

Here’s why: the debt owed to creditors increases with interest accumulated during the non-payment period. You have to make up the missed repayments at the end of the loan term, adding more months of repayments and paying the interest on interest charges. Ouch.

According to iol.co.za, the estimated 1,6 million South Africans who took payment holidays from April to June 2020 will pay an additional R20,7 billion on top of their initial debt. Those who took holidays from three types of debt – home mortgages, vehicle finance and personal loans – will repay an average R30,100 on top of their existing debt. https://www.iol.co.za/personal-finance/debt/the-huge-cost-of-payment-holidays-4d4cdcb5-4aa3-4aca-90de-9bf2fe6c2117

Surprised? Deferring debt may not be your best option, after all. If you are unsure whether it’s worth postponing repayments in your financial situation, speak to a professional debt adviser from ezDebt.

Will payment holidays affect my credit score?

The short answer is yes. By default, non-payment will likely affect your credit score negatively and lessen your ability to take more loans in the future. Before proceeding with an eligible payment holiday, enquire how it could affect your current credit score.

You can avoid this situation by looking at other options to reduce your debt burden and ensure timely repayments to keep your credit record intact while dealing with debt and retrenchment.

Debt review is the recommended option to restructure debt and lower monthly repayments to make them affordable and continue the repayment plan without affecting your borrowing ability. Consult a professional from ezDebt to discuss debt review and retrenchment.

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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