How to help family in debt

Published on 24th October, 2019 at 11:28 am

Nearly three quarters of South African households’ disposable income is spent on debt – a scary statistic. So, why are we facing this challenge? Credit spending can start off innocently enough, but left unmanaged it can wind up being an anxious battle often fought alone. Help your loved ones fight it and pull through victorious with these expert tips:

Know when there is a debt problem

“Too much debt is when money is being used for debt that should have been used for your day-to-day expenses, or you’re getting through each month on borrowed money,” says Russell Dickerson, president of the Debt Counsellors Association of South Africa (DCASA). “If you are using borrowed money to pay for food and petrol and rent, you are stuck in the debt trap.” If this is the case, it’s time to take control of your budget, or seek help from a debt counsellor.

If a family member or friend approaches you to borrow money for monthly essentials “just to get through the month,” they’re likely struggling with debt, says Dickerson. “You might also be able to notice changes in behaviour, such as nervousness or general stress around month-end. “They know that after they have paid their debt, the stress starts again,” explains Dickerson. “If you’ve worked the whole month and you don’t look forward to payday, there is a problem.”

Have the conversation

“Many people will not volunteer information about their financial situation, but if asked, will be relieved to talk about it,” says Dickerson. “Having too much debt is a lonely place, no one really wants to discuss it. If you care about your friends and family and you recognise a sign, it is worth asking the question.”

Then, take the time to listen properly. “Be prepared to listen and not be judgemental,” suggests Dickerson. “This person needs a safe space to discuss and come to terms with the situation.”

If you’ve taken the first step in helping them, stick around for the journey too. “Do not get involved and then withdraw support – you can do more damage by abandoning a vulnerable person,” he says.

Get help

Start by offering to write up a budget with your family member. Read this for a simple budget guide.

Is the situation out of control and beyond your scope of help? It’s time to get the advice of a registered debt counsellor, says Dickerson. You could play a pivotal role in the outcome. “Accompany your family member if necessary, and ask the questions they might not want to ask, and make sure everything is revealed,” urges Dickerson. “A good debt counsellor will explain all the options and their advantages or otherwise.” To get in contact with a debt counsellor, contact the Debt Counsellors Association of South Africa.

Encourage your loved one to get into the habit of healthy spending, and to use credit in a responsible way. This includes settling purchases within 55 days to ensure you do not pay any interest, suggests Francois Uys, head of digital, marketing and communications at Sanlam Reality. “As a responsible Wealthsmith, stick to responsible shopping. Ask yourself: do you really need this item? Do you need to buy it now or can it wait until later?” he continues.

Not all credit cards are created equal, and choosing one that helps you save, like the Sanlam Money Saver credit card, could help your family build and maintain good spending habits. “By using a credit card to unlock immediate credit and ensuring you save at the same time, you will have a healthier approach to managing your money,” says Nathea Nicolay, head of product at Sanlam Reality.

When does help actually hurt?

“If your father offers to pay off your debt, and you can pay him back at 0% interest, this is a good financial deal,” says Dickerson. “But if you have to listen to what a poor budgeter you are at every braai thereafter, then it is possibly not such a good deal,” he continues. Suffice it to say, lending money to family can spell the beginning of conflict. If you’re dealing with conflict right now, read this to help bring an end to the tension.

If you do end up lending money, “treat family like the bank treats you,” suggests Dickerson. What does this look like? Write everything down and sign it, and make sure there are no misunderstandings, he says.

Besides the family politics and emotions involved, there’s the practical side to consider too.

Consider how you will get your money in the following situations:

• What happens if the person dies?
• What if they get divorced?
• What if they lose their job?

What about signing surety?

Signing surety involves committing to take responsibility for settling someone’s debt if they are unable to. “It is very risky to sign ‘to help someone’,” says Dickerson. “You are effectively saying ‘I will take over payments if they cannot pay’, and the financial institution will hold you to that agreement.” Ask whether you’re prepared for that commitment – it could wind you up in debt review if you sign surety but can’t honour your promise. In instances like a student loan for your child, it is necessary and often difficult to avoid signing surety. Read more about how to tackle the affordability of education here.

Sanlam allows members to spend their money responsibly by offering them the Sanlam Money Saver credit card, which helps them save on every rand spent by putting up to 5% of their spend in a dedicated savings account. Find out more here.