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Like so many middle class South Africans, Terrence’s finances were causing him sleepless nights.
In an email to City Press, Terrence wrote: “I am at a point where I feel like I work for nothing. I get paid on the 25th of each month, but by the 27th, I am left dead broke. I am emotionally miserable; I need to sort out my finances.”
Terrence sent us all his financial details, including his debts and where his money was going each month.
Terrence found himself short each month and intended to just keep rolling over his expensive payday loan to make ends meet. He also needed to save for lobola while supporting two siblings and his mother. He was repaying a Woolworths account, a one-month loan from FNB and another loan from a colleague.
We asked Paul Slot, chief executive of debt counselling firm Octogen, to help Terrence create a solution to ease his financial stress.
“His personal finances were in a mess and he borrowed money from all and sundry and started to take very expensive payday loans from FNB. He was certainly headed for legal action,” says Slot.
He says Terrence’s call for help came just in time because legal action had not taken place and his credit record was still good enough to consider debt consolidation.
Because Terrence was in a position to meet his monthly repayments, with an adjustment to his budget, debt review was also not necessary.
Octogen provided him with a realistic budget and recommended that he apply for a loan of R13 000 to settle his debt with Woolworths, his colleague and the bank, and urged him to refrain from taking debt from any other source.
This would mean that Terrence would only have one payment a month to make, and this debt could be settled in 12 months.
“If this is implemented, all his small debt will be settled and he will have enough money to save for lobola in the next 12 to 18 months,” says Slot.
Although Octogen only recommended that Terrence take a loan of R13 000, Terrence qualified for a loan of R27 500 and decided to take the full loan amount and pay it off over 24 months.
Slot says that despite their strong recommendation to only take the R13 000 that was required to settle his debts, Terrence wanted to use the additional money to pay for a course for one of his siblings and for taxi fees for another sibling for a month. He kept R4 000 aside for emergencies.
Terrence admits he was a bit hoodwinked by the credit provider. “The consultant made it sound like if I did not take up the R27 500, I would not be given anything at all. I knew Octogen had recommended R13 000, but it all flew out of my mind when I was on the call with the consultant,” says Terrence.
Slot says this is one of the frustrations with credit providers – they offer more debt than is actually required.
“The consumer can seldom resist the temptation to take more than what is needed.
“I wonder how often this happens, where consumers don’t borrow what they need but what they can get,” adds Slot.
If you do apply for a consolidation loan, only go for the minimum you need. In this case, Terrence will be paying more than R44 000 for the loan of R27 500.
Nevertheless, Terrence now has a budget he can work with and can still save R3 000 a month.
“I feel relieved and free. I have paid off everyone I owed money to, no matter how little the money was.
“No more debt for me – I will focus only on repaying the R1 861 on a monthly basis towards the R27 500 for the next 24 months, though I want to do my best to pay it off before that time,” says Terrence.
Slot says: “For us, the only disappointment is that he took more debt than was required, but he should be fine if he sticks to the advice and budget provided.”
Terrence’s financial future is now in his own hands. He has to make the most of this opportunity by not taking on any more debt and aiming to be debt free in less than 24 months.
