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By Ayanda Ndimande, 23 July 2020
Sanlam has recently launched a free Credit Score Dashboard that allows clients to view their credit position and engage with a human coach to help improve their score. Managing debt is a big part of this process.
South Africans’ household debt increased to 34.1% of GDP in the third quarter of 2019. It’s expected to rise considerably this year as COVID-19 wreaks havoc on the economy and individuals’ finances. Ndimande says that many may be tempted to take the option of a payment holiday over this time. But, just like Trevor Manuel was wary of South Africa being involved in debt standstill due to the implications of deferring obligations, individual South Africans should be cautious with debt relief as well.
“It’s wise to be wary and investigate all your options, especially as these could impact your credit score. If you take a payment holiday, you will still be charged interest on the balance of your loan, including your usual monthly fees.”
The best solution is to continue to pay your credit provider if you can, says Ndimande. Individuals need to explore their options, including their credit agreement, “Check your credit agreement to identify whether or not the product is covered by insurance that protects you from unforeseen circumstances such as death, permanent disability or loss of income. Approach your credit provider to find out whether you can lodge a claim against this insurance first. If not, only then should you request a payment holiday.”
Ndimande says that this will then be reflected at the credit bureau and the person will not be marked as someone that has fallen into arrears. She stresses again that the best option is to keep repaying your credit instalments. “If you do have cash during this time, take advantage of the lower interest rate and keep paying the same amount as before – or even more – towards your debt,” she advises.
Many credit providers have reworked their credit score models to accommodate the current challenges facing consumers. These take factors such as industry, and even company, into account as additional indicators of risk. Yet, consumers need to be aware that credit providers will be wary of extending credit post-COVID-19 and will focus on individuals with very good credit scores first.
For this reason, Sanlam’s Credit Score Dashboard’s Coach facility plays an important role in guiding consumers according to their needs. This gives clients an opportunity to engage with a human coach who can suggest ways to better manage debt to improve their credit score.
“Many people know their credit score but don’t know exactly what to do with this number once they have it,” says Ndimande. “Our coaches act as a credit management guide by supporting and motivating clients, providing them with the tools and information to make informed decisions to improve their credit profile and better their overall financial position.”
Ndimande concludes that now is also the time for people to partner with their financial planners to strengthen these relationships and draw up a holistic plan to stay on track to achieve financial goals. “Financial planners will also be able to advise on whether a payment holiday is the best option for you right now.”