Johan Wepener 25 June 2025
South African consumers are under considerable financial stress, according to the latest statistics. This situation will worsen following the further rise in fuel prices, electricity and the general cost of living. Associated with financial stress is a rise in debt, especially unsecured debt like credit cards, personal loans and short-term loans.
When one finds it difficult to repay debt, there are a few things that should be done: Firstly, don’t ignore the problem and hope it will go away. It will not. It will get worse. Secondly, do not hide or run away from creditors; they will eventually find you. Thirdly, do not make new debt to repay existing debt; this will result in bigger repayment commitments. Fourthly, do not borrow money from a friend, a family member, or your employer; this usually results in bad personal relationships.
What are your options then? Let’s look at them and compare them.
- Option 1: Approach your creditors and negotiate a repayment plan. The advantage is that you may get out of the situation without any legal process or consequences. However, the problem is often that creditors are only willing to grant temporary relief, for example a payment holiday or reduced payments for a few months. During that time, normal interest rates will be applied, and you may find that after that relief period you have more debt.
- Option 2: Consider a reconciliation loan, where all the existing debt is consolidated into one loan. You then only pay one installment instead of many different installments. Debt reconciliation may have a few problems: a. You may not qualify, because you already have too much debt; b. You may find the single installment is not significantly lower than the sum of the previous installments; c. The interest rate may also be higher, because of the bigger risk involved with the reconciliation loan.
- Option 3: Voluntary sequestration may be considered as a last and drastic option. The advantage of sequestration is that you are left with no debt and after about 7 years you can apply for rehabilitation. The disadvantages are that you lose everything – your house, your car, your furniture. You may also find that you do not qualify for voluntary sequestration if the proceeds from your estate do not cover about 20% of your debt.
- Option 4: Apply for debt counselling (debt review), where you repay the debt over a longer period at installments that are affordable to you.
In the next article we will discuss the debt counselling process, the advantages and disadvantages, some misconceptions about debt counselling and also why debt counselling has a bad name with consumers, credit providers and the public in general.