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Take control of personal duty

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Consumers typically start each year with higher levels of indebtedness after a season of free spending, and 2022 brings more problems than usual.

“We are facing rising inflation, rising prices for electricity, gasoline and food, rising interest rates,” said Tonya Pavlova, deputy chief financial officer of credit company RCS.

Significantly, Pavlov warns of over-indebtedness of the population, seeing that RCS is engaged in the supply of credit to consumers, and in particular, store cards that will be used in most retail chains SA.

“Statistics are a concern, it shows that in the first quarter of the year consumers felt significant stress. Historically, overspending during the holiday season has a domino effect in the first months of the year.

“A recent report by consulting firm Eighty20 found that market credit market participants in SA can be described as‘ stress ’in terms of their level of indebtedness. The mass lending market accounts for the majority of creditworthy people, 82% of whom have retail loans, and a fifth – credit cards.

“As a rule, in this market, the ratio of monthly installments to net income is more than 70% or at least two loans that are in default,” – says Pavlov.

Credit data available in late December 2021 showed that the middle class is increasingly dragged into debt, according to a recent Eighty20 Consulting report on credit stress. “Automotive asset financing and credit cards have suffered the most: arrears have risen by 35% and 20% year on year, respectively.

“After declining by almost 30% over the past four years, the number of outstanding loans has stabilized, real credit accounts have hardly increased, although retail trade has met expectations in December with growth of 3.1% over the previous year,” the report said. .

Eighty20 notes that the number of overdue loan accounts for at least nine months (accounting for half of all overdue loans) continues to grow, albeit at a slower pace.

It says that the share of loans with a good reputation over the past year has remained stable at 62%, ignoring the fact that almost 40% of all loans are overdue.

That means a lot of people with financial problems.

Financial stress

RCS classifies people who are required to pay more than 70% of their income in debt repayment as over-indebtedness.

In fact it means that someone who earns 20,000 rupees after paying taxes will see that 14,000 rupees will disappear on debt service. He disappeared – only 6,000 rupees – after working at a distance of 15 meters from an ATM after a month.

Pavlov says that anyone who has to pay 65% ​​of their income to service debt and be aware of all their payments will not be considered over-indebted.

It still looks like an awkward situation that raises the question of how much debt anyone should have.

“There is no clear answer. Everyone is unique and everyone has different circumstances, ”Pavlov says.

She says people are “afraid” of financial affairs, simply saying they are not prone to funding. In an interview with Moneyweb, she repeatedly noted that people should have a good “relationship” with their finances.

“The quiet winter season is the perfect time to reflect on your finances and, if necessary, work on your relationship with your responsibilities,” she adds.

There are small but significant steps you can take to improve your financial situation.

New debt

When considering new debt, people need to be aware of what they are taking on, understand the need for it, and understand the obligation to repay. New debt should be considered in the light of other liabilities and income.

Take action if you are over-indebted or experiencing stress due to your financial situation, Pavlov says.

“The path to less debt and financial security starts with good planning and then consistency.

“If you are trying to reduce the amount of debt accumulated over the summer months, or you are concerned about rising prices and rising interest rates, you can focus on a concerted effort to work closely with your debt cycle.

“You can do this by avoiding things that cause excessive costs. For some people, this may mean temporarily unsubscribing from those promotional offers that your favorite sellers regularly send out.

“For others, it may mean refusing to visit shopping malls.

“Eliminating the temptation and the possibility of overspending while you work to reduce debt can significantly achieve the long-term goal of financial viability,” she says.

Pavlov also notes that the reality of over-indebtedness can be emotionally disturbing and can have wider implications in other areas of your life.

A plan is written

The first step is to create a debt repayment schedule using an Excel spreadsheet or write a list of exactly who owns it. This information is readily available.

“Looking at the numbers on paper will give you a complete picture of your finances and help you plan your loans strategically,” says Pavlov.

“Decide which debt to repay first to improve your cash flow.

“Keep track of your progress. Seeing debt reduction helps [you] to feel less overwhelmed and keep you motivated to stay consistent in repayment, ”Pavlov says, warning that it could be a long process.

“Getting such an unexpected benefit as a hassle income, a tax refund, a gift or a bonus will always be a pleasant surprise. The unfortunate reality is that any extra income means extra expense.

“Challenge this mentality.

“Invest in yourself in the future by paying off today’s debt. The opportunity to pamper yourself is still there, you just choose to use it not immediately, but in the future.

“If you can manage your debt, you will accelerate your path to becoming more financially secure.

“Reward yourself for certain stages so that your financial journey becomes positive in the long run,” she says.

Her plan is simple:

  • Make a list of all your debts and monthly payments
  • Decide which bills to pay first
  • Check your progress regularly
  • Beware of temptation
  • Set new financial goals

Pavlov says people should also learn to use loans responsibly and also educate themselves on issues concerning their personal finances in general. “Take your personal finances. Don’t let the debt fall asleep, ”she says.

Also, the opportunity to interview the public relations manager who arranged my meeting with RCS was too good to miss.

Slightly surprised, he still shared his situation. “At this stage, I have very little debt. I just started my career. I only have a car loan at the moment.

“I am lucky that a lot of information about personal finances intersects[es] my desk. I study a lot and have a financial plan, ”he said, noting that he wants to maintain a good credit rating.

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