By Johan Jonck

In order to broaden employee access to financial services and products, many employers allow service providers to deduct instalments and premiums directly from employee salaries. What most employers have failed to do, was to introduce measures to limit such deductions. The result is that there are thousands of employees who do not have enough take-home pay to sustain the minimum monthly expenses are effectively caught in a debt trap.

With the recent entry into the market of pay-day advances lenders, who circumvent the National Credit Act, and who do not record their advances at the credit bureaus, this situation is about to get worse. The SA Reserve Bank issued a consultation paper in 2018 in an attempt to regulate payroll deduction but has not come up with any guidelines.

Employers have a duty to ensure that the voluntary deductions, which they allow to be deducted from employee salaries, are within the parameters of financial wellness principles.

Adding to this conundrum is the fact that the matrix of minimum living expenses to be used by credit providers in their affordability assessments was issued in 2015 by the National Credit Regulator. Since then, living expenses have nearly doubled. That means that credit providers are legally over-indebting consumers at present!

What can you do if find yourself in a situation where multiple deductions from your salary and bank accounts result in take-home pay that is below your minimum living expenses? You may, however, consider exploring voluntary debt rearrangement plans to address the issue. Here are a few potential options:

Debt Consolidation: Debt consolidation involves combining multiple debts into a single loan or credit facility with more favourable terms, such as lower interest rates or longer repayment periods. By consolidating your debts, you may be able to reduce your monthly repayment obligations and improve your cash flow.

Debt Settlement: In some cases, especially when you have fallen behind on your repayments, you may negotiate with your creditors to reduce the total amount owed and the reduced capital amount. More often than not, you may need to find a credit provider who is willing to provide you with a loan to take advantage of the settlement discount. Repaying the new loan on a lower amount will result in lower instalments.

Debt Management Plan (DMP): A DMP is a structured repayment plan administered by an attorney of a Debt Councillor that provide this service. Through a DMP, the agency negotiates with your creditors to reduce interest rates, extend the repayment term or waive certain fees. You make a single monthly payment to the agency, and they distribute the funds to your creditors according to the agreed-upon plan. Creditors may be willing to work with you if they believe that you are genuinely experiencing financial hardship and are committed to repaying the debt.

Bankruptcy: While bankruptcy should generally be considered as a last resort, it can provide relief for individuals facing overwhelming debt burdens. Bankruptcy laws are complicated, and it is recommended that you consult with a qualified bankruptcy attorney or specialised service provider to understand the implications and determine if it's the right option for your specific situation.

It is crucial to consult with an experienced service provider who can assess your financial circumstances and guide you towards the most appropriate route toward recovery. They can help you understand the potential consequences, eligibility requirements, and any legal or financial implications associated with each option. Remember, every situation is unique, and it's essential to consider your circumstances before making any decisions regarding your debts.

* Jonck is a director at Welltec, a financial wellness technology company.

PERSONAL FINANCE