According to data from debt counselor DebtBusters, South African consumers spend 63% of their gross income on debt payments. As a result of the effects of inflation, interest rate increases, and a decreased ability to borrow, many consumers are actively seeking assistance. We have seen an increase of gross income on debt from the first quarter of 2022 from 62% to 63% in the second quarter of 2022.
What is a debt?
Anything owing by one person to another is referred to as a debt; examples include making a significant purchase that one would ordinarily find difficult to finance. This can include goods, services, and money.
Different Types of Debt
1. Unsecured Debt
Unsecured debt refers to loans that are not backed by collateral. If the borrower defaults on the loan, the lender may not be able to recover their investment because the borrower is not required to pledge any specific assets as security for the loan. An example of unsecured lending is a credit card
2. Secured Debt
Secured debt is debt that is backed or secured by property. The bank seizes the collateral, sells it, and then uses the money from the sale to settle the debt if the borrower fails to pay back the loan. Securities are viewed as supporting assets for debt or a debt instrument. An example of secured debt is a mortgage loan.
3. Revolving Debt
Revolving debt is credit that you can use repeatedly if your accounts are open, and your limit hasn’t been reached. Credit cards are typical examples of revolving debt.
Tips of Managing Your Debt
- Be aware of who you owe money to and how much.
- Pay your bills on time each month.
- Make the required payment.
- Select the debts you want to pay off first.
- Use an emergency reserve as a backup plan.
- Create a monthly budget to help you organise you’re spending.
- Make a monthly bill payment calendar.
- Notify your creditors if you are unable to make payment.