WAYS TO SEE IF YOU ARE OVER INDEBTED AND HOW TO GET HELP

Cape Town - Determining whether one is over indebted has always been a challenge. I guess partly because its very hard for human nature to admit having challenges and seeking help. However, over indebtedness is a serious problem among working South Africans. According to the National Credit Regulator(NCR) statistics released last year, South Africans have been developing a habit of spending not saving. The report shows that there has been an increase in the number of consumers applying for credit. The report revealed that South Africa is currently sitting at more than 25% unemployment rate and the the level of over indebtedness among consumers is almost more than half of active credit consumers and that means more credit consumers are in arrears. There are ways for one to determine how their income is spent and asses whether or not they are over indebted.

UNDERSTAND:

•  YOUR GROSS INCOME

This is the amount you get before deductions and it is liable for deductions towards the South Africa Revenue. Understanding your gross income is really important as you don't want to fall under the illusion that you have a lot of money at your disposal.

• YOUR NET INCOME

This is the income left after SARS tax deductions and is still liable for deductions such as the Pension Fund, Medical Aid etc. Deductions are usually stated in the employment contract.

• YOUR DISPOSABLE INCOME

After all your deductions you are left with your Disposable Income. This is the amount that reflects in your account and expenditure of these funds is your responsibility. This is where careful expenditure is needed.

Having an understanding of the above is critical as the next step will be the DISCRETIONARY INCOME. This is the amount left after paying off everything. If your Debt repayments or monthly installments are over/greater than your Discretionary Income, there is a problem. If you manage to pay some and not all of your Creditors that's an indication you are over indebted as well.

There are ways in which you can manage and and get yourself out of DEBT

1. Buy what you need, not what you want
2. Brain storm on ideas as to how to save on living expenses
3. Seek the service of a Debt Counselor and get help in managing your accounts 

RAND CONTINUES GETTING STRONGER

Cape Town - The rand touched a three-year high against the dollar in morning trade on Monday, amid reports that president Cyril Ramaphosa could announce a new cabinet this week. Ramaphosa is expected announce a cabinet reshuffle in the next week, according to a report by the Mail & Guardian, with some dramatic changes beyond simply shuffling out his predecessor’s troublemakers.

The local unit hit 11.51/dollar earlier in the session, its firmest since February 2015. By 09h45, the rand traded at the following levels against the major currencies:

• Dollar/Rand: 11.52 (-0.19%)
• Pound/Rand: R16.16  (0.42%)
• Euro/Rand: R14.20  (-0.00%)

Markets are likely to have continued to react to what was a well received budget speech, which could see the clountry avoid a Moody’s Q1 2018 downgrade.

Fitch meanwhile, said on Friday that South Africa’s budget reverses some of last year’s fiscal deterioration, although it warned that poor finances of state-owned companies remain a major risk to fiscal targets.

Treasury said on Wednesday last week that value-added tax would be raised for the first time in 25 years, as part of efforts to cut the deficit and stabilise debt. “This would represent a partial reversal of recent fiscal deterioration,” Fitch said in a statement.

“Nevertheless, fiscal targets are subject to substantial risks, the largest of which stems from state-owned enterprises, notably the electricity company Eskom, whose medium-term finances are under pressure.”

CONSUMER TIPS AHEAD OF THE 2018 NATIONAL BUDGET

CAPE TOWN - With the 2018 National Budget Speech set for this Wednesday the 21st, analysts have been sharing on what they think the budget will be mostly about.

Judging from what economical experts have been saying, there is a huge possibility of tax increase on a number of products.
One possible outcome of the budget is the introduction of Value Added Tax(VAT). which if introduced will see us having it for the first time since 1993. According to Priya Naicker, advice manager at Old Mutual, tax hikes usually affect consumer budgets and expenditure therefore consumers need to plan and budget accordingly for changes  that might arise. Naicker highlights some of the ways in which consumers can prepare for these changes.

• Review and understand interest rates on your debt

According to Naicker, while it may be tempting to purchase on credit, consumers need to consider purchases carefully against the total repayment cost. Consumers need to create a plan to reduce debt and not accumulate it. 

• Review luxury and discretionary spending

"With the introduction of VAT an option, the Treasury might increase VAT on premium items and services like cigarettes and alcohol" says Naicker.

Cutting expenses on these items could provide financial relief.

• Create a financial plan

"A financial plan helps you develop strategies to balance needs in the short, medium as well as long term goals. Combining attention to what you want to achieve with an understanding of your finances and taking action is key to financial wellness." says Naicker. She also added that "A financial adviser often brings the expertise needed to interpret economic factors within the context of individual circumstances to help create a dynamic plan that is adaptable to changing circumstances."

• Save and keep saving

Saving has been and will always be a great way to minimize expenses. Naicker urges consumers to continue cultivating the habit of saving and spending less. 

Cape Town - If your child is one of the thousands of first-year students enrolled at institutions of higher learning for 2018, you may have found yourself on a parents’ WhatsApp group discussing the tricky question “How much money do we give them?”.

Niel Fourie, the public policy actuary at the Actuarial Society of South Africa, says funding young adults who are not yet earning an income is tricky.

“Students tend to demand the freedom and privileges that come with being adult, but, at the same time, they are not yet in a position to earn their own keep. This means that you are probably still funding them without having direct control over how they spend.”

Fourie says the good news is that, as long as you control the purse strings, you can still teach your children how to spend their money responsibly and how to get into the habit of budgeting and saving. He outlines some of the ways in which parents can use and help minimize the expense of first year student expenditure.

•  Learn to live within your means. 

According to Fourie, teaching young adults to live within their means will require some tough love. “They will run out of money and, since most students have to pay for their food and transport, you will have to come to their rescue when they get it wrong.”

He says that, because generous top-ups simply reward undisciplined spending, allowance top-ups should be made only on request and on presentation of an expenses overview.

Once a fair allowance has been established after a few months, it is time for the next lesson, says Fourie. “You need to teach your child to do more than just record expenses. It is time to learn how to budget.”

•  Drawing up a budget

Money needs to be told where to go, says Fourie. And a budget does exactly that.

While keeping a record of monthly expenses will have taught your child the difference between needs and wants, a budget is different in that it is drawn up at the beginning of the month and allocates money to essential expenses, such as food, transport, laundry and data costs. Anything left over from the monthly allowance can be used for entertainment.

Fourie says that most runaway debt problems are the result of people’s inability to budget.

“Unless you tell your money where to go at the beginning of the month, you will lose control over your expenses, resulting in overdrafts and credit card debt.”

He adds that one of the most important lessons you can teach your child is to never spend money that he or she does not have. The most effective way of ensuring this is by sticking to a budget. “This means that in addition to the expenses overview at the end of every month, your child should also now also present you with a budget for the month ahead.”

• Avoid short-term debt at all costs. 

It is important to understand the difference between short-term debt and long-term debt.

Fourie says that short-term debt includes buying on credit and overdrafts. “Short-term debt is always expensive, as it comes with a high interest rate, and should be avoided.”

On the other hand, long-term debt, such as mortgage bonds, is usually backed by an appreciating asset. Provided you can afford the repayments, this debt is considered “good debt”.

He says students should never be allowed to buy on credit. “You will teach them nothing by allowing this, and they will end up drowning in debt before they have even started working.”

Fourie says the only exception is a student loan, because it allows you to invest in your future. 

“If negotiated properly at a reasonable rate with a reputable institution, a student loan is not necessarily a bad thing.

“Without an understanding of what you are actually spending versus what you can afford, you will likely keep falling into debt,” he says. “Therefore, make sure your young adult does not fall into the debt trap by teaching them proper budgeting skills.”

He adds that a good budget will eventually result in some money being left over at the end of each month. Once this happens, the time is right to encourage your child to save.

•  Learn to save and invest

Fourie says that, as with all good habits, saving requires practice and self-discipline. 

The first step, he says, is to recognise that every little bit counts. Encourage your child to save every month, even if it is only R100. Help your child to set goals that will get him or her into the habit. For example, if your child is keen to go to a music festival later in the year with a group of friends, make it clear that the outing will have to be
self-funded.

Fourie says you could incentivise your child to save by offering to match the monthly saving, provided it is paid into a separate savings account and your portion is used only to fund the savings goal.

“Once the savings habit has been established, you can set bigger goals and even introduce your child to investing.”

Fourie says that teaching young adults to take charge of their finances successfully will require patience and parents to lead by setting a good example. This is not something that can be achieved in one month. 

“Learning to work with money, avoiding debt and eventually saving will help your child to survive financially once they have to stand on their own two feet.”

STOCKS, RAND - REACT POSITIVELY AFTER RAMAPHOSA TAKE OVER

CAPETOWN - Domestic stock index rose by close to 5% yesterday, marking a huge one-day gain in close to more than three years, a clear indication of how Zuma's resignation could pave the way for the new leaders to quicken the pace for the country's economic growth.

Yesterday's increase saw the currency soaring to its finest since 2015. The foreign exchange market advanced to levels last seen in February 2015. By 5pm, the rand bid at R11.6304 to the US$, 25.4c firmer than the same time on Wednesday, having reached a session-best of R11.6025 earlier yesterday.  Analysts however have warned of possible serious obstacles ahead of budget speech next Wednesday.

In reaction to Zuma's exit, ratings agency Moody's said it was focused on the new leadership's response to economic challenges. S&P Global Ratings said the leadership changes would not immediately affects the credit status.

ZUMA'S RESIGNATION - WHERE TO FROM NOW?

CAPE TOWN - President Jacob Zuma (or should I say "former President") last night announced his resignation as president of the state bringing to an end what appeared to be a Presidency marred by all sorts of scandals to say the least.

With Zuma out of office, all eyes now lie on the man who is seen as the potential successor of Zuma - Cyril Ramaphosa. Having been elected president of the ANC about 2 months ago, Ramaphosa is seen as the man to take South Africa out of the situation it is in courtesy of the Zuma Presidency. 

If successful as the next president of the Republic, Ramaphosa will be faced with a huge task to restore dignity to the state and government in general. We look at some of the tasks that Ramaphosa might have to deal with once he assumes office of the president if that be the case.

• TACKLING CORRUPTION

It is no secret that there was corruption under the Zuma led administration. Calls of him to step down over allegations of State Capture, Zuma appointees heading almost all the law-enforcement agencies , which have been slow or loathe to act against some of his closest allies who've been implicated in the free for all. As President, Ramaphosa will have to deal with the corruption issues effectively and restore trust to the people.

• STATE OWNED COMPANIES ARE IN CHAOS

With corruption and looting sprees targeting mostly state owned companies (Eskom which is at risk of running out of cash, PetroSA) are among some of the SOCs that have been hobbled by a lack of leadership and oversight. Ramaphosa has seen part of the transformation at Eskom, however much still needs to be done to improve our State Owned Companies.

• REIGNITING GROWTH

While the Government's National Development Plan says an average 5.4% economic growth rate is needed to meet it's goal of slashing a 27% unemployment rate, the central bank anticipates an expansion of just 1.4% this year and 1.6% in 2019. Greater policy certainty would go along way toward boosting business confidence and investment in the economy under the Ramaphosa Administration. 

• FINDING FUNDS FOR THE FREE TERTIARY EDUCATION

Shortly before he was replaced as the ANC leader, Zuma announced that Government would be fully subsidizing tertiary education for students from homes where the combined annual income is less than R350 000. Though this is a good idea and the ANC backed it, there is no solid plan of action as to how this will be achieved and it is all left for the man to fill in Zuma's shoes to provide a way forward. 

DO NOT BLAME THE DEBT COUNSELOR QUICK

A lot of times consumers under the Debt Review Process find themselves in a situation where they feel like it was a mistake for them to go under Debt Review. Mostly this is because the process may seem to not serve the purpose for which it was meant for. What do I mean by this?

Many times consumers still get calls and notifications from their creditors over unpaid accounts. Sometimes the new restructured debt payment plan may even take long than the initial proposed period upon going under Debt Review.

This is frustrating to say the least. The natural and sensible thing in such a situation is to blame the Debt Counselor. However as much as it may seem like the best thing to do, it isn't advisable to start blaming or in many cases cancel your Debt Review arrangement with your Debt Counselor as most of the causes of the problems in account payments are to a greater part the Creditors fault.

It is important to understand that the Debt Counselor works as your agent in negotiating with your Creditors and in most and does not handle your finances and is not even involved in their distribution.
Funds are distributed by a PDA (Payment Distribution Agent). PDAs handle many different accounts and chances of your paper work being messed up on their part are high.

Another reason can be on the creditors part. Many Creditors debt collection systems are automated and if not updated it's highly possible to get notifications over late or unpaid accounts.

When a consumer finds themselves in such predicaments, It is wise and advisable to blame your Debt Counselor  or cancel your Debt Review process. This is the time you need your Debt Counselor most!

Debt Counselors have a good relationship with both creditors and PDAs. Letting your DC know of the issues you might be facing may be the solution as the Debt Counselor can find out what the problem is for you and can do so within legal bounds as they are by law registered to operate as such.

Reckless lending: control the 'dealer', not the 'addict' - experts say

Cape Town – Over-indebted consumers irresponsibly seeking to obtain even more credit can be seen as drug addicts and reckless lenders as their drug dealers, according to Clark Gardner of Summit Financial Partners.

He made this comparison in his presentation to Parliament’s portfolio committee on trade and industry during presentations on the proposed Draft National Credit Amendment Bill on Wednesday.

“Financial literacy campaigns will assist, but will take a long time to reach all consumers. The success rate of these types of campaigns is may be between 10% and 15%,” said Gardner.

“Yes, over-indebted consumers need financial discipline, but these types of borrowers are often their own worst enemies. So, control the credit provider – like a drug dealer – rather than trying to control the ‘drug addict’. Regulating the supply can be achieved with a far better success rate.”

Gardner told the committee that credit laws must be easier to enforce and simpler to understand.

He believes that although the National Credit Regulator and National Credit Tribunal were created to ease access to justice, the cost of enforcing the National Credit Act has achieved the opposite and slowed down the process.

He proposed that laws be written with clear binary outcomes, for instance setting out the exact amount for credit life insurance in clear terms, as the previous section 106 of the act made use of market-related terms be feels are difficult to enforce.

Further, Gardner wants the bill to define clearly what unsecured credit is. For instance, it is where the total cost of credit exceeds 20%, or something similar.

There should also be a specific definition of reckless credit, in his view. For instance, all loans advanced where total debt instalments exceed 40% of a consumer’s income.

“The (credit) system should work, but it does not. The law is not enforced at a regulatory level,” he said.

In his view, healthy credit could be defined as not more than 40% of the net income of a consumer and should be the cut-off point for obtaining more credit. When it is stipulated in such specific terms, he feels the law could be enforced.

“We cannot in South Africa have a ‘first world’ law which is ambiguous and relies on a strong ombudsman for declaratory orders, like in the UK. We need a credit law which takes into account that South Africa is a third world country and consumers require easily accessed and enforceable laws,” said Gardner.

In his view, South Africa credit law makes it expensive and time-consuming for the “man in the street” to seek justice.

Gardner was asked by the committee how Summit is funded, and what his interests are in the outcome of the bill.

He replied that Summit is a for profit organisation which also assists non-paying clients. It is involved in statutory debt counselling and is a registered Alternative Dispute Resolution Agent.

“Yes, we are profitable, but primarily a purpose-driven entity that aims to bring positive change to the South African financial services industry. Like Johann Rupert said: To do good you must do well,” Gardner told the committee.