A Fin24 user whose company doesn't have maternity benefits has fallen into the debt trap. She writes:
I was on maternity leave for six months. Our company doesn't have maternity benefits. My debts are in arrears, so now I want to borrow money to pay off the arrears and settle the accounts, but no one wants to lend me money.
I am in the process of getting my accounts up to date. Should I borrow or just continue paying what I can afford?
Friedl Kreuser of Summit Financial Partners responds:
Dear Fin24 user,
It sounds like you are in a very difficult situation - suddenly finding yourself without an income can be a real challenge.
However, I definitely would NOT recommend that you continue borrowing! This may feel like the easiest instant solution, but making more debt will only result in more accounts in arrears in the coming months.
This is what we call "borrowing from Peter to pay Paul", and it is often the start of a debt spiral which can be extremely painful to escape from. Whatever you do, you must try to avoid making any further debt at this point.
So what should you do?
Firstly, it sounds like you are back at work, but if you find yourself without an income again, you should consider your options for receiving income from the Unemployment Insurance Fund (UIF) as well as using Credit Life Insurance to pay some of your debt.
Anyone who has permanently or temporarily lost their income can claim from the UIF, as long as the loss of income is not their own fault. UIF payouts may be small, but are certainly better than no income at all.
As for Credit Life Insurance, many consumers are not aware that they are paying monthly credit insurance premiums on many of their debts and insurance policies.
Credit life is insurance that pays out in the event of death or loss of income, and can help you keep up your debt payments, or even settle some of your accounts.
It is always worthwhile to contact all your credit and short-term insurance providers to find out if you can claim credit insurance when you have lost your income.
Many of our clients have managed to turn retrenchment into an opportunity to settle many of their debts by taking advantage of credit insurance.
Secondly, if you are earning an income and still struggle to pay all your debts and expenses, you must make arrangements for reduced payments with your credit providers.
You can do this either by contacting each of your credit providers directly, explaining your situation and making realistic payment arrangements that you will be able to stick to, or by approaching a debt counsellor to make arrangements on your behalf.
The most important thing to remember is that making more debt is absolutely not the answer - it will bring only temporary relief and can lead to far more serious problems down the line.
It is also very important to remember that debt cannot simply be ignored, even when you are struggling.
It may be intimidating and even embarrassing to approach your credit providers or a debt counsellor, but it is vital that you stay in contact with your credit providers and show that you intend to pay your debts, in whichever way you can.
Unfortunately, your debt will not simply disappear and your credit providers will not simply "forget" about you. Unpaid debt will only lead to court orders, repossessions and garnishee orders (salary deductions) that tarnish your credit record and add expensive legal fees to your debt.
Remember that there are ways to take action and manage your debt - the sooner the better.
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