7 Signs your debt is out of control & what to do about it

With millions of South Africans living from month-to-month it has become apparent that we lack financial education and basic budgeting, saving and investing skills.

In this article we’re going to take a look at 7 signs your debt is out of control, or will be soon and then give you some general advice and what to do about it.

Some level of debt is not only normal but actually healthy. Home loans enable us to purchase homes which can later become investment properties. Vehicle loans allow us to purchase a car and get to work and back every day. Personal loans allow us to do things like plan and fund a wedding which we may not have been able to do without a loan.

The problem with credit is that when we’re earning a good income and have access to a range of banking and lending services we can quickly take on too much debt and any disturbance to our income or any unplanned expenses can send us crashing down.

Tymebank recently came out with a survey that indicated that over 4 million credit active South Africans have defaulted on one or more of their credit agreements. This staggering figure simply goes to show that we’re not so good at recognising the early signs of financial trouble.

The 7 signs your debt is out of control

Sign #1: You have missed one or more loan repayments within the last 3 months

If you’ve missed one or more loan repayments within the last 3 months than chances are that you have too much debt. Unless the reason for your missed repayment was simply poor management, missing any repayment or not having enough to pay bills simply shows that you have too much debt  or are living beyond your means.

Sign #2: You have more than one short-term loan

Short-term loans carry the highest rate of interest among credit types and, since they’re so easy to get, may cause you to take them lightly and take one too many within a short space of time. Worse yet, you may become dependent on them to get through the month and end up in a vicious cycle of debt.

If you have more than one short-term loan and have maxed out one or more credit cards, this is a definite sign that your debt is out of control.

Sign #3: You do not have an emergency fund

An emergency fund is simply a savings account that you keep a few months’ worth of expenses in. If you lose your primary source of income or have to deal with an emergency this fund will help you get through it, credit free. If you do not have an emergency fund, chances are you’re spending all of your income and likely have high expenses and too much debt.

Sign #4: Your savings accounts are empty

Most South Africans do not have any savings at all and, on par with the last sign, if you do not have any savings you are probably carrying high expenses and an excess of debt. If your savings accounts are empty, this is certainly a sign that your debt is out of control.

Sign #5: You’re borrowing money to keep up with debt repayments

If you have taken out any form of credit or even made use of a credit card to meet your debt repayments this is a definite sign that your debt is out of control. Taking on a new loan to repay existing loans can devastate your finances since the next month will require, in addition to all the repayments you couldn’t make this month, the repayment on your new loan as well.

Sign #6: Your credit score is low

Your credit score is simply a reflection of your credit and repayment habits and let’s lenders know how much risk they would be assuming by lending you money. The higher your credit score, the more chances you have of getting approved for credit.

If your credit score is low (between 0 and 582) or has dropped, chances are that you are not only struggling to make your repayments but taking on too much credit and not managing your finances well. If you don’t know what your credit score is, you should apply to have a copy sent to you. You can do this easily on the site of any one of the four major credit bureaus in South Africa.

Sign #7: You’re running out of money & dipping into your overdraft before the end of the month

Millions of South Africans run out of money before month end. From poor spending habits to a tough economy and high inflation rates that are becoming more and more difficult to keep up with, we’ve all felt the pressure of the recent tough economic times.

If you, like so many of us find yourself unable to make it through the month just on your salary, chances are this is a sign you have too much debt and, of course, too many expenses. If you can’t remember the last time you made it through the month without using your overdraft, this is a sure sign your finances are in trouble.

What to do if you’re debt is out of control

The first and most important thing for you to do is stop borrowing money and avoid opening any new accounts. This includes store accounts. Secondly you will need to assess your finances and create a new budget as well as a debt repayment plan. You should get a copy of your credit report and follow our 10 steps to clean up your bad credit.

These 10 steps can be summarised as follows:

1. Evaluating your overall financial situation
2. Request and review a copy of your credit report
3. Dispute and correct errors
4. Sorting and prioritizing your debts
5. Creating a debt payment plan
6. Drawing up a realistic budget and set financial goals
7. Pay on time every time
8. Avoid any and all forms of new credit
9. Earning additional income and paying down debt faster
10. Monitor and adjust your repayment plan, budget and financial goals as you progress