Whether you are a dog walker or a waitron, the chances are high that South Africa’s lockdown restrictions had a dramatic impact on your part-time job. Many students were unable to work for months on end, resulting in already-tight budgets becoming even tighter. For those who had tuition fees to pay or student loans hanging over their heads, this was an incredibly stressful time.
The good news was that a number of our country’s banks were keen to provide all those South African citizens who were feeling the economic strain, with some relief. This relief came in the form of ‘payment holidays’. Essentially, a payment holiday allows you to stop making repayments towards your debt for a specified period of time. In South Africa, this period was around three months.
Does it pay to embrace payment holidays?
The truth? Probably not. Upon hearing that you wouldn’t have to worry about repayments and your credit score taking a knock when your income was minimal, you likely jumped for joy. However, in the long run, a payment holiday is almost certain to cost you more.
According to DebtBusters, a debt counselling company in Cape Town, an estimated 1.6 million South Africans generated an accumulated total of R20.7 billion in additional debt by participating in the payment holidays offered by banks during the times of lockdown.
The reality is that while you do not have to make any repayments during the time of the payment holiday, your payment term is extended as a result, which means that you’ll be repaying your debt for longer than originally expected. Never mind the fact that interest continues to rise based on the accumulated amount of debt that you owe.
According to the CEO of DebtBusters, a payment holiday is likely to increase what each individual owes by an average of 4.2%, which equates to R12 900 extra.
In other words, for short-term relief, you take on long-term consequences. For many, accepting the offer of a payment holiday simply wasn’t negotiable. However, in future, always consider all of your options and perhaps do your best to cut down on expenses in order to make ends meet before fiddling with your debt.
We want to hear all about your experiences with payment holidays and student loans. Tell us on our Facebook page or in the comments section below.