Bank account empty, January bills to pay – now what?

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SIMON BROWN: I’m chatting with Salem Nyati, Momentum Group’s consumer financial education specialist. Salem, appreciate the time today.

We are in late January. We’re in that awkward space where it’s not yet payday, but I suspect many bank accounts are absolutely empty. There are some things we can do, some we need to have perhaps done back in December. But there are plans that we can make to kind of help the money go further every month, not necessarily January. It’s often tough out there in many other months as well.

SALEM NYATI: Definitely Simon. I just first of all want to greet you on this 89th day of January – because it really feels like it. Look, we always say that to fix your months, especially January, you kind of need to fix your December because that’s where the damage really happens. And after the damage and with the aftermath of December we then start seeing people starting to apply for loans. That sees them then back for the rest of the year and maybe 36 months into the future.

So it’s very important, before you start panicking about, oh, I don’t have enough, look around you – what is it that you can do? From day to day, look at firstly the food choices that you’re making. I know we prefer some brands and we prefer going to certain shops, but it makes sense to really just think about the food that we’re eating, how often we eat certain things, all the way to the transport that we’re using. Is it cost effective? Can I maybe look at lift clubs, carpooling, and even electricity usage?

What can I do? Some people switch their geysers off. Some people just make those certain choices. So you look around you and [as yourself] how can I first cut back on these things that are the day-to-day expenses that lead up to the bigger expenses later on in the month?

And then you can start looking at bigger things like my credit obligations. Where do I cut off there, because before I go and borrow, there are options. As people we have credit obligations, we have insurance premiums. You can actually request a payment break or a payment holiday where you’re not paying your installment for maybe a month or two or three. They usually give you between one and three months where they say you can pause.

You then take those installment amounts and plug them in where you find you are in need – be it food, be it stationery, be it just your day-to-day needs – just so that you can fall back again into your financial rhythm. So instead of borrowing, you just halt the installments for a month to three months. All that does is it just pushes your payment period by that month or the three months.

If you had like a 72-month obligation, it now moves to 73 months or 75 months, so it doesn’t really affect you. Even your credit score – it doesn’t affect it badly because all you’re doing is exercising what’s available for you.

SIMON BROWN: I was unaware of that. That’s a cunning thing because just that little bit of respite for a month or two can often make a world of difference.

You also mentioned loans. If you approach your financial institution for a loan, that’s easy enough. Maybe you’ve got a credit card or an overdraft, but there’s also that temptation to, I don’t know, end up with the loan sharks – and that’s really dodgy because they run unregulated, and it can really, really get messy. That’s why I think your idea around a payment break is so much better, because loans work but only if you can get them from proper registered and recognised providers.

SALEM NYATI: Correct. And also when you have a proper plan on how to pay it back, when you understand that, for example, I’m going to take from the credit card and I need to have paid it back in full in 55 days so that I dodge the interest. Or you understand that I’m just going to take maybe a payday loan and I’ll quickly cover it the next month.

What happens with loan sharks is they’re not going to scream and say, ‘Hey, I’m a loan shark’, but rather [offer] phrases like ‘Apply for a loan, no credit checks required’. Or ‘Apply for a loan, no affordability assessments done’. Then you fall for that and before you know it you’ve entered into a loan-shark agreement. It’s alarming how many consumers in South Africa actually go that route.

We are already over-reliant as a country when it comes to loans. So it’s very important to consider other avenues. Even the simple things, Simon, like going and making an arrangement with your credit provider. You don’t have to like halt the entire installment. You can say, ‘Look, can I pay half for this month, or half for the next three months, just so that I can get back onto my financial feet again?’ You also don’t want to find yourself in a situation where people are coming and using questionable ways of collecting their money, and you have nowhere to run because now you’re not dealing with a credit case per se, but you’re actually dealing with a criminal case as well.

SIMON BROWN: I take your point. The key point around all of this is to communicate. If you owe someone money, phone them and talk to them. They don’t want to be chasing you. That’s not fun either.

We’ll leave it there. Salem Nyati, Momentum Group’s consumer financial education specialist, I appreciate the insights.

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