It’s a tough time to be retrenched in South Africa during a national pandemic, struggling to survive financially and repay debts you cannot afford anymore.
A July 2020 report by credit bureau TransUnion showed the Covid-19 lockdown had impacted 77% of consumers’ ability to pay their bills and loans. Furthermore, by August, 21% of the surveyed have lost their jobs and were left drowning in debt. (source: https://www.timeslive.co.za/news/south-africa/2020-08-20-lockdown-has-left-south-africans-drowning-in-debt/)
If you suddenly find yourself unemployed, how do you manage debt and retrenchment worries when you need to be looking for the next paying job?
Before you start panicking, here are seven steps you can take today to manage debt under retrenchment.
- Talk to creditors
After retrenchment, the first rule of thumb is to inform creditors about this life-altering change in your financial situation. Your priority should always be managing debt and fulfilling the current instalments to creditors to avoid blacklisting and losing vital assets.
Ignoring debt won’t make it go away. Instead, seek ways to negotiate new loan terms with creditors or postpone the payments under retrenchment until you secure new employment. Reassure creditors about your temporary debt situation and job-seeking plans.
- Think debt review and retrenchment
If you’re struggling with massive debt and retrenchment, a debt counsellor may renegotiate more affordable debt repayments to creditors on your behalf. The process, known as debt review, extends loan terms or cuts down interest rates to reduce instalments into one affordable monthly fee.
You don’t even need to talk to creditors if you’re not up to it. The debt counsellor will undertake all debt-related communication while you focus on finding new employment.
- Claim on UIF
If you have contributed towards UIF (unemployment insurance fund) via salary deductions during your previous job, you are entitled to claim back unemployment insurance due to retrenchment. Use these UIF payments to cover some of your debt under retrenchment.
To receive the UIF benefit, you must claim within six months of losing your job. The payouts should last until you run out of your UIF contribution or you find new employment, whichever comes first.
- Claim on retrenchment insurance
Do you have a retrenchment cover? Depending on any retrenchment insurance policy you may have taken during your active employment, you could claim this insurance to repay some of the debt’s cost while under retrenchment.
Generally, such a policy may pay out up to six months after losing your job, giving you peace of mind and enough time to get back into the job market.
- Check your credit life insurance
If you have taken any type of loan, short-term or long-term, a credit life insurance policy attached to it may cover the shortfall in repayments due to retrenchment or death.
Credit life insurance usually pays out for up to six months under retrenchment, depending on its cover terms. Use this window of opportunity to cover significant repayments such as a home loan or vehicle finance while looking for a new job.
- Cut out unnecessary spending
You can’t get out of debt by keeping the same lifestyle that got you indebted in the first place. An excellent rule to survive both debt and retrenchment is to cut out non-essential expenses and stick to the basics. Look at ways to save money and forgo luxuries while you focus on fulfilling debt repayments.
For example, switch to prepaid or pay-as-you-go services instead of paying a hefty monthly service fee for your transactional bank account or cellphone plan. Also, eliminate those services and subscriptions (e.g. gym membership) you don’t need or use regularly.
- Learn to budget properly
“A budget is telling your money where to go instead of wondering where it went,” says American author and personal financial adviser Dave Ramsey.
Budgeting is the first step towards managing your money and paying off debt as quickly as possible. Drawing up a budget also proves to be a life-saver in unforeseen financial situations such as managing debt under retrenchment.
If you’re over-indebted and unemployed, a registered debt counsellor reviews your financial situation and helps you budget accordingly to become debt-free. By undergoing a debt review process, you’re not only gaining an affordable debt repayment plan, but also the knowledge to manage your finances better.
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.