Debt advice

Today, debt is an unquestionable reality for many South Africans. From Johannesburg to Cape Town, Durban to Pretoria, and beyond, individuals and families across the country grapple with the harsh consequences of debt.

Key Takeaways

  • Understanding the Nature of Debt: There are different types of debt, including personal loans, credit card debt, mortgages, and student loans, each with unique terms, interest rates, and consequences for non-payment. Understanding the nature of your debt is the first step toward managing it effectively.
  • Recognizing Debt Problems: General signs of a growing debt problem include consistently making minimum payments, missing payments, relying on credit for necessities, and experiencing financial anxiety. Monitoring your Debt-to-Income Ratio can also give you a concrete idea of your debt situation.
  • Basic Debt Management Strategies: Methods like the Snowball and Avalanche strategies, along with debt consolidation, can be effective in managing and reducing debt. Choosing the right strategy depends on your circumstances.
  • Formal Debt Solutions in South Africa: Options such as debt counseling, debt administration, and sequestration are available to those who need more formal interventions to manage their debt.

The Rising Debt Problem in South Africa

Debt in South Africa isn’t just a personal issue—it’s a national concern. In recent years, economic instability, coupled with a rise in the cost of living, has led to an alarming increase in household debt. According to the National Credit Regulator, almost half of the country’s 25 million active credit consumers struggle to keep up with their payments. This shows an escalating debt crisis that shows no sign of slowing.

The pandemic worsens this situation, with many South Africans turning to loans to offset lower incomes and job losses. Consequently, the overall consumer debt rose sharply, pushing many into a debt spiral. It’s a bad scenario, but one that can be navigated with the right advice and resources.

Understanding Debt

What is Debt?

At its core, debt is money that you owe. Whether you borrowed it from a bank, used a credit card to pay for a purchase, or took out a loan to pay for education, if you’ve spent money that isn’t yours with the promise of paying back later, you’re in debt. In South Africa, like the rest of the world, people need debt for different reasons—covering daily expenses, buying homes, paying for education, or starting businesses. While not all debt is harmful, unmanaged debt can quickly snowball into a serious problem.

General Causes of Debt in South Africa

The reasons why South Africans fall into debt are varied and often intertwined with socio-economic factors. Some of the most general causes include:

  • Low income and high cost of living: Many South Africans struggle to meet their daily needs with their income. When the cost of living outpaces earnings, people turn to debt to bridge the gap.
  • Unemployment: With one of the highest unemployment rates globally, joblessness is a big driver of debt in South Africa.
  • Easy access to credit: Availability of easy credit, often with little regard to the applicant’s ability to repay, leads many down the path of overwhelming debt.
  • Lack of financial literacy: Without understanding the consequences of bad debt and how to manage finances, many fall prey to destructive debt cycles.

Consequences of Unmanaged Debt

Unmanaged debt can lead to an abundance of issues that go beyond financial strain. Some potential consequences include:

Legal consequences: Failure to pay your debts can result in legal action from your creditors, leading to possible asset seizure or garnished wages.

Stress and mental health issues: The constant worry over debt can lead to stress, anxiety, and depression.

Strained relationships: Debt can put big pressure on relationships, often leading to conflicts and breakdowns.

Bad credit record: Late or missed payments can negatively impact your credit score, making it harder to get loans or credit in the future.

But the news is not all bad. By gaining a firm understanding of the ins and outs of debt and how it impacts you, you’re already on the path to recovery. Let’s dig deeper into the different types of debt that South Africans generally deal with.

Types of Debt

When discussing debt, it’s important to understand that not all debt is made equal. Different types of debt can have different impacts on your financial health. In South Africa, these are some of the most general types:

Personal Loans

A personal loan is a lump sum of money borrowed from a bank, credit union, or online lender that you agree to pay back over a certain period, usually in monthly installments. It’s often used for big purchases, consolidating debt, or covering unforeseen expenses. While these can be a lifeline in a pinch, the high-interest rates can make them a risky choice.

Credit Card Debt

Credit card debt is a type of revolving debt, that allows you to borrow against a predetermined credit limit if you make minimum monthly payments. This type of debt often comes with high-interest rates, which can cause the amount you owe to balloon if you’re only making minimum payments or missing payments altogether.


A mortgage is a type of loan used to buy or secure a property. The property itself is used as collateral against the debt, meaning the lender could seize it if you stop making payments. Given the big amounts usually involved, falling behind on mortgage payments can lead to serious financial difficulties.

Student Loans

These are loans specifically created to cover the costs of education, such as tuition fees, accommodation, and textbooks. The National Student Financial Aid Scheme (NSFAS) in South Africa provides loans for students who meet specific criteria. These loans often have more favorable terms than other types of loans, but still need to be repaid once you start working.

Other Forms of Debt

There are also other forms of debt like car loans, payday loans, store cards, and overdrafts. All these debt forms come with their own set of terms, interest rates, and consequences for non-payment.

How to Recognize When You’re in Too Much Debt

Sometimes, the descent into troubling debt is so gradual that you hardly notice until it becomes overwhelming. However, recognizing the signs of a growing debt problem is the first step towards regaining your financial freedom.

Red Flags of a Debt Problem

Debt problems don’t materialize overnight. They start as minor issues that gradually escalate, like a dripping tap that eventually floods a room. Here are some red flags that could indicate you’re heading toward a debt problem:

Paying only the minimum: If you consistently find yourself only able to make minimum payments on your credit card or loan balances, this is a sign of looming debt issues.

Missed payments: Often missing or delaying payments because you can’t afford them is a clear indication of a debt problem.

Relying on debt for basic needs: If you often use credit to pay for important items like food and rent, this suggests your income isn’t covering your basic needs, leading to accumulating debt.

Sleepless nights due to money worries: If financial anxiety is keeping you awake at night, it’s a clear signal you need to address your debts.

Debt Ratios and What They Mean

In addition to looking for red flags, certain ratios can give you a more concrete idea of your debt situation. One of the most generally used ratios is the Debt-to-Income Ratio (DTI).

DTI is intended to divide your total monthly debt payments by your gross monthly income. If your DTI is higher than 36%, it usually indicates that you’re carrying too much debt for your income level.

» Read more: Struggling with debt? Debt Management Plans can help!

Dealing with Debt: The Basics

Having debt does not mean financial ruin. With the right strategies, you can manage your debt effectively and steer your finances back on track. Let’s explore some of the basic yet effective ways to handle debt.

The Snowball Method

Coined by personal finance guru Dave Ramsey, the Snowball Method involves tackling your smallest debts first, while making minimum payments on bigger ones. Once the smallest debt is paid off, roll the money you were paying on that debt to the next smallest debt. This creates a ‘snowball effect’, where your debt repayments progressively get bigger as you pay each debt off. This method can provide quick wins, helping to keep you motivated on your debt repayment journey.

The Avalanche Method

In contrast to the Snowball Method, the Avalanche Method recommends paying off debts with the highest interest rates first, while continuing to make minimum payments on the rest. Once the highest-interest debt is paid off, move to the one with the next highest rate. This method can save you more money in the long run as it minimizes the amount of interest you’ll pay.

Consolidating Debt

Debt consolidation involves combining all your debts into a single debt that you pay off with one monthly payment, often at a lower interest rate. This can simplify your debt repayment process and potentially lower the amount of money you must pay back. However, you need to carefully consider the fees involved and whether the repayment term is extended too far into the future, as this could lead to you paying more in the long term.

Deciding which method to use often comes down to personal preference and your specific financial situation. Now, let’s look at more formal debt solutions available in South Africa.

Formal Debt Solutions in South Africa

When basic debt management strategies are not enough, it might be time to consider formal debt solutions. Here are three general options in South Africa:

Debt Counselling

Debt Counseling, also known as debt review, is a process in South Africa that helps over-indebted individuals to manage their debts. A debt counselor negotiates with your creditors on your behalf to lower your monthly payments and extend your payment terms. They’ll also create a structured payment plan for you. While under debt counseling, your assets are protected from repossession.

Debt Administration

Debt administration is a legal process where an appointed administrator manages your finances. They distribute your available funds to your creditors after considering your necessary living expenses. It’s worth acknowledging that this option is only suitable for individuals with a low income and debts less than R50,000.


Sequestration is a last resort for those who can’t pay their debts at all. It’s a legal process where your assets are sold to pay off your creditors. Although this option can clear a lot of debt, it has serious implications, such as a severely impacted credit score and limits on future borrowing.

Legal Aspects of Debt in South Africa

When dealing with debt, it’s important to understand the legalities surrounding it. Let’s dig into some legal concepts tied to debt in South Africa.

The National Credit Act

The National Credit Act (NCA) is a comprehensive piece of legislation that outlines the rights and obligations of the credit consumer. The NCA was created to protect consumers from predatory lending practices and allow credit providers to assess the affordability of potential borrowers before granting credit.

Prescription of Debt

In South Africa, debt can ‘prescribe’ or become invalid after a certain period if no acknowledgment of debt was made within that time. According to the Prescription Act, unsecured debt is prescribed after three years, and secured debt (like a home loan) prescribes after 30 years. It’s unlawful for debt collectors to pursue the prescribed debt, so understanding this concept can protect you from unethical practices.

Credit Amnesty and Credit Bureaus

Credit amnesty is a provision that allows for the removal of adverse credit information from a consumer’s credit record maintained by credit bureaus. This gives individuals an opportunity to start rebuilding a positive credit history. Understanding how credit bureaus operate can help you manage your credit profile more effectively.

Debt Collection and Legal Proceedings

Debt collectors must adhere to specific guidelines when recovering debts. They cannot harass or intimidate you, and they are compelled to respect your right to privacy. If you’re taken to court for debt, it’s important to know your rights and obligations in such proceedings.

By knowing the laws and your rights, you’re in a better position to handle debt matters. The final part of this guide will focus on stopping future debt problems.

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Stopping Future Debt Problems

While dealing with existing debt is important, it’s just as important to take steps to avoid future debt problems. Here are some practical strategies:

Building a Budget and Sticking to It

A budget is a financial plan that helps you manage your income and expenses. It gives you a clear picture of where your money is going and helps ensure you live within your means.

Building an Emergency Fund

An emergency fund is a safety net of money set aside for unforeseen expenses. Having this fund can stop you from having to take on debt when unforeseen costs occur.

Improving Financial Literacy

Understanding basic financial concepts can go a long way to stopping future debt issues. This includes knowing how to manage money, understanding how credit works, and knowing how to make informed financial decisions.

Seeking Professional Financial Advice

Professional financial advisors can provide personalized advice tailored to your financial situation. They can help you create a budget, plan for retirement, and provide strategies to stop future debt problems.


Dealing with debt can be overwhelming, but it’s important to remember that it’s not a life sentence. With understanding, determination, and the right strategies, you can manage your debts, regain control of your finances, and work towards a debt-free future. South Africa has different formal solutions, such as debt counseling and sequestration, to help individuals overcome their debt problems. Understanding the legal aspects surrounding debt, like the National Credit Act and the prescription of debt, can empower you to deal with your debt situation more effectively.

Frequently Asked Questions

What is the difference between good debt and bad debt?

Good debt is an investment that will grow in value or generate long-term income, like a student loan or home mortgage. Bad debt is something that quickly loses value and does not generate income, like credit card debt or a personal loan for discretionary spending.

Can I go to jail for not paying my debts?

In South Africa, you cannot be jailed for failing to pay a debt unless you have committed fraud. The National Credit Act has banned practices such as imprisonment for non-payment of debts.

How does debt counseling work?

A debt counselor assesses your outstanding debts and negotiates with your creditors on your behalf to lower your monthly payments and extend your payment terms. They create a structured payment plan, and while under debt counseling, your assets are protected from repossession.

Can I apply for credit while under debt review?

No, you cannot apply for any new credit while under debt review until you have been issued a clearance certificate by a debt counselor.

Can I get out of debt on my own?

Yes, it’s possible to get out of debt on your own by implementing strategies such as the Snowball or Avalanche method, budgeting, and building an unforeseen fund. However, professional advice can be beneficial, particularly in severe cases of over-indebtedness.

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