The high rate of unemployment in South Africa continues to exacerbate already high levels of over-indebtedness in the country, says Credit Ombud, Manie van Schalkwyk. 
He was commenting on the release of Stats SA’s latest Quarterly Labour Force Survey, which shows an unemployment rate of 24,9% in the fourth quarter of 2012. Although this is a minor improvement compared to the unemployment rate of 25,5% in the third quarter, it remains worryingly high.
The expanded definition of unemployment, which includes people who have stopped looking for work, was at 35,9% in the fourth quarter, from 36,3% previously.
“Many people simply can’t find work and this is affecting households’ ability to pay back their debts,” says Van Schalkwyk. “We’re seeing high levels of over-indebtedness across the country.”
The ratio of household debt to disposable income amounted to 76,3% in the second quarter of 2012 and in September 2012, the National Credit Regulator (NCR) reported that of the 19,69-million credit-active consumers, more than 9,25-million (47%) had impaired records.
Van Schalkwyk cautions consumers who have lost their jobs and who are unable to find work to contact their credit providers as soon as possible and tell them about their change in circumstances, to improve their chances of renegotiating their repayment terms.
“Credit providers are more likely to be willing to negotiate lower repayment terms the sooner they are told about your loss of income,” says Van Schalkwyk.
“Once you are three or more months in arrears, it may be too late and you could be negatively listed at a credit bureau.”
He says many consumers apply for credit, assuming their income is secure, but do not plan for a loss of income.
“If you do lose your job, ensuring that you pay off your debts on time should remain a priority, even if this means selling some of your assets to do so,” explains Van Schalkwyk. “The longer you have outstanding debts, the more you will pay in interest charges and eventually debt collection and legal fees too.”
He offers the following tips to deal with debt if users lose their jobs:
* Check if they have cover – users may not realise that they have income protection cover. It is very important to ask all credit providers whether the agreement is covered by insurance.
Some credit insurance policies pay the monthly instalment for a few months and others may even settle the entire outstanding debt. Make sure that users report the claim before they fall into arrears with the monthly instalments as some policies will not pay for retrenchment or the like once the account is in arrears.
Also ensure that users furnish the credit provider with all the documents they require to process a claim.
* Prioritise debts – a home loan, rent, vehicle repayments and utility bills are classed as priority debts. Fail to pay these debts and users could lose their homes or be evicted, have their electricity cut off, or have essential items (such as a car) repossessed.
But also list which debts have the highest interest rates, such as credit cards, unsecured loans and bank overdrafts and figure out how to pay these off as soon as possible as the interest rates are usually higher and will soon mount up, tipping users into a debt spiral.
* Redo the budget – get a clear idea of what’s coming in and what’s going out. The amount that’s left after paying for household bills, living expenses, plus repayments and interest on anything users owe is what’s available to start paying off debts more quickly. Cut back on all luxuries and unnecessary spending.
* Use redundancy packages wisely –  users can also use redundancy pay or savings to pay off some debt. Start with priority debts first. Users will need to try and stretch this out for as long as possible, so avoid spending it as soon as it is received.