Debt and retrenchment

A Fin24 user has to deal with a sudden reduction in monthly income. He writes:

My wife has recently lost her employment, effectively cutting our monthly income by R15 000.

My income after deductions amounts to about R23 000. Our living expenses (and there is nothing extravagant to it) adds up to about R20 000 while our debt adds up to about R11 000 per month.

Until my wife finds new emplyment, effectively we are short by about R7.5K a month.

What are our options? Can one freeze debt repayments for a month or two?

Clark Gardner, CEO of 6cents.co.za and Summit Financial Wellbeing, responds:

I am sorry for this predicament. We have found that most lenders are prepared to assist in "bad luck" situations.

As a first step contact all your creditors and request a moratorium on your payments for two or three months as a result of the loss of an income. Request that they agree to this in writing thereby protecting you accordingly.

Make sure you keep communicating to them on the prospects and timing of new employment opportunities.

If creditors fail to agree on this or new employment opportunities do not come your way then you may need to explore more drastic action such as debt counselling.

Please note that most credit agreements contain credit life insurance that usually provides retrenchment cover. This would mean that in the event of retrenchment the insurance would cover your next 6 to 9 months of required installments.

Another option to explore, which may attract greater debate, is for your wife to cash in her retirement fund limited to the tax free portion. This tax free portion is R315 000.

Use these funds to settle your unsecured debt as they attract interest and fees in excess of 40% per annum whilst your savings merely attracts 7% on average net of fees.

Once your wife again earns income then ensure you exercise great discipline in catching up on your retirement savings. We would gladly assist in auditing the settlement balances to ensure they are accurate.

- Fin24

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