As the economy continues its downward spiral and job losses remain on the rise, many institutions are offering various types of debt relief to those affected by the COVID-19 pandemic. While it may be tempting to have a break from some of your monthly expenses, especially when the future is uncertain, it’s not always the best solution to put payments on hold – unless you absolutely have to. Let’s examine the important considerations.
Read the fine print.
It is important that payment holidays are only considered when the terms and conditions - taking all variables into consideration - result in a favourable outcome for you. Be sure to read the fine print because, while an offer may seem simple at first, it could result in long-term repercussions for your future payments.
For example, payment holidays will see you paying interest on your deferred instalments, so you’ll need to make provision for that in your future budget.
Business Insider also suggests that you keep an eye on your credit score if you do decide to take a payment holiday, as there’s a chance that relief arrangements may not be communicated accurately, which could affect your credit record.
Look into credit insurance.
Credit insurance is there to pay outstanding debts if you pass away or are permanently disabled. But in 2017, South Africa adopted new legislation stipulating that it could also cover repayments for up to 12 months if you become unemployed or unable to earn.
There’s a good chance that you have credit insurance cover on your loans – home, car, overdraft – which may cover your repayments if you lose your income as a result of the COVID-19 pandemic. You could even have this insurance on a short-term loan without being aware of it, so find and read all of your loan agreements carefully, to determine whether you have cover under your particular circumstances. Depending on how your policy is worded, you could even be covered in circumstances where only part of your salary is affected.
Business Insider warns that self-employed individuals are generally excluded, but check with your credit provider; they may determine exclusion on a case-by-case basis.
Find areas for saving.
When life is as uncertain as it currently is, it becomes increasingly important to prioritise your spending and stick to a budget. Print out three months of bank statements and see where you can shave expenses. (Remember that any payments you defer will affect your future payments, so you’ll need to make provision for this in a future budget).
It is preferable not to cancel your home or car insurance, but rather to increase your self-insurance (excess) portion. This results in more affordable premiums, and when you are at lower risk due to the lockdown, it makes sense to free up these funds for other essentials.
It’s good practice to review your personal finances once a year, or whenever your needs and circumstances (such as those caused by a global pandemic) change. If you need any assistance re-visiting your motor, home or business cover, feel free to get in touch.
IntegriSure is a short-term insurance FSP. Other financial opinions should not be construed as financial advice.