How to eradicate debt accumulated as a result of job loss

A South African consumer approached DebtBusters for advice on how to eradicate debt accumulated due to job loss:

My husband and I both had good jobs and we have always been able to afford our expenses. Due to the recession and the poor economic circumstances in South Africa, my husband was retrenched and lost his job.

This had a significant impact on our family’s finances as we no longer had a second income. I am now finding it extremely difficult to manage our expenses based on my income only. 

Our house and cars are extremely important to us, and I am very concerned that if we do not act soon to address our current debt situation, they will be taken away from us, and we will lose everything. 

Our finances are minimal and we do not have money for food, petrol and other essentials, which are vital for our everyday living. I do not know what to do any more and would like to know what can be done to help us eradicate our debt.

Navigating financial stability after job loss

You or your partner’s job loss can significantly impact your family’s wellbeing. Losing dual income benefits is challenging, but there are steps you can take to bridge the gap without accumulating debt.

When you or your partner loses a job, you must take the following steps:

Get your redundancy package:

A redundancy package is a package of benefits and compensation that is given to an employee who has been laid off.

It is designed to provide you with some financial security while you are trying to find another job or source of income.

A redundancy typically includes several key components:

Severance pay: This is payment for loss of employment and may include a lump sum payment or continuation of salary for a defined period.

Notice pay: Employees are entitled to be paid for the remaining period of their notice, typically calculated based on years of service and the nature of their job.

Medical aid: Redundancy packages sometimes include the continuation of medical aid coverage for a defined period or until the employee secures alternative health insurance.

The benefits may depend on how long you have worked at the company. It is essential that you find out how much you will be granted and when you will be able to receive the money. 

Notify your credit providers of your financial situation:

Notify your credit providers as soon as you lose your source of income. With many credit agreements, you are charged an additional fee for credit life insurance. 

Credit life insurance will cover you in the event of death, redundancy, or disability and will pay for your debts for a certain period of time.

Apply to the Unemployment Insurance Fund (UIF):

The Unemployment Insurance Fund (UIF), is a government-run social protection system that provides financial support when you lose your job through no fault of your own.

Most South African employers and employees are required to contribute to UIF, unless they have been exempted. 

If you have unemployment insurance, your employer must pay you a portion of your salary for up to six months, while the government pays the remaining portion, depending on how long you have worked for the company.

To claim UIF benefits, you must follow a specific application process and provide the following documents:

• Your 13-digit bar-coded ID book, smart ID, or passport

• UI-2.7 form completed by your employer

• UI-2.8 form which you populate with your banking details

• UI-19 form populated with the information provided by the employer showing that you are no longer employed

• A six-month salary schedule

Draw up a new budget:

Create a new budget,determining what your expenses are and where you can cut or entirely eliminate costs. This will allow you to stretch your money so that it lasts for longer.

Tips on creating a new budget to manage reduced income:

1. Prioritise essential expenses

When faced with reduced income, it's important to prioritise essential expenses, such as housing, food, healthcare, and transportation. Make these expenses your top priority and ensure that you can meet your basic needs before considering other expenses.

2. Cut unnecessary expenses

Look for areas where you can cut your expenses. This may include cancelling subscriptions, reducing dining out, or downsizing your living space. Consider alternatives to expensive products or services, such as generic brands or secondhand items. By making small changes in your lifestyle, you can save a significant amount of money.

3. Review your insurance coverage

Assess your insurance cover to determine if there are opportunities to save money. Consider adjusting your premiums or switching to a more affordable insurance provider.

4. Negotiate with creditors

If you have outstanding debt, reach out to your creditors to negotiate better terms. You may be able to negotiate a lower interest rate or monthly payment, or extend the repayment period.  

5. Seek professional help

If you are struggling to manage your reduced income, consider seeking professional help. A registered independent financial adviser can provide personalised advice based on your unique circumstances and help you develop a financial plan. They can also help you navigate debt repayment, budgeting, and other financial challenges.

Access your pension fund:

Accessing your pension fund early has both advantages and disadvantages. 

On one hand, it can be financially beneficial in times of crisis or unexpected expenses. By tapping into your retirement savings, you may have access to funds that would otherwise be unavailable. 

However, it is important to note that accessing your pension fund early can have considerable long-term financial implications. It reduces the amount of money you will have available at retirement, which can result in a lower standard of living. 

Additionally, the early withdrawal may be subject to penalties and taxes, further reducing the overall benefit. It is important to carefully evaluate your financial situation and consult with a financial advisor before making any decisions.

Check in with family and friends

Losing your job can be a distressing and overwhelming experience. It is natural to feel a combination of emotions such as sadness, disappointment, and anxiety. However, it is important to remain positive and resilient during this period. 

It is essential to reach out to your support system. Tell your family and friends that you are going through a rough period. Share your thoughts and feelings with them and let them know that you are open to their support and guidance.

Why and when to get in touch with debt counsellors 

If you’re overwhelmed by debt, it is best that you get in touch with a debt counsellor. Asking for help early on can prevent the situation from escalating and provide more opportunities for resolution. Seeking advice from a debt counsellor can provide valuable guidance and resources. 

Additionally, applying for debt counselling can provide a fresh start. It is important to be honest and proactive about your financial situation, as seeking help is a sign of strength and determination to overcome debt.

Benefits of working with a debt counsellor to manage multiple debts:

Working with a debt counsellor provides numerous benefits for individuals struggling to manage their debts.

Firstly, a debt counsellor offers expert advice and guidance on debt management, helping you make informed decisions about your financial situation. They can help you create a realistic and practical budget, ensuring that your expenses are aligned with your income. 

Additionally, debt counsellors can provide assistance in negotiating with creditors, seeking lower interest rates or more manageable repayment terms. This can help you avoid defaulting on your debt and potentially damaging your credit score.

Moreover, debt counsellors can provide emotional support during times of financial stress, providing a sense of relief and reassurance.

Reach out to us today if you need help with managing your debt.