Debt Health Check

What is a Debt Health Check?

Just like going for a check-up at a doctor to check your heart rate, blood pressure, cholesterol, and more, a debt health check is a thorough assessment of your financial situation. A debt health check focuses not only on your debt levels and your credit score, but also your expenses and your overall financial health. It helps you understand your current debt obligations and potential financial risks. It also helps you develop strategies to manage or reduce your debt effectively.

Taking a debt health check is a crucial first step to regaining control of your finances and improving your quality of life. When you’re deep in debt, it’s challenging to focus on saving and investing, which are essential for building wealth. Understanding your financial situation and creating a solid plan, including good money habits, is key to working your way out of debt.

Debt Sage’s counsellors can do a free debt health check for you and discuss its implications for your finances.

Why is a Debt Health Check Important?

Unlike the saying “ignorance is bliss”, being in the dark about your debt health can and will hurt you. Not thinking about your debt health, or postponing a proper assessment, doesn’t make your problems disappear, unfortunately.

Undergoing a debt health check gives you a clear-eyed view of your situation. It helps you to make informed decisions and take proactive steps to improve your financial health. 

There is another reason a periodic debt health check is vital: if your information with the credit bureaus is incorrect, a debt health check will flag this to you and help you correct the errors. Errors in your information with the credit bureaus can be a sign of identity theft and will affect your ability to obtain credit in future, so it’s vital to see and correct errors as quickly as possible. 

Read more on credit bureaus and how they work, below. We also show you how to correct errors.

How Does a Debt Health Check Work?

Your Debt Sage counsellor will be with you every step of the way in your debt health check. The following five things will happen during your debt health check.

Need a free debt health check? Contact our counsellors.

1. Credit Report and Credit Score Analysis

Getting a credit report and analysing your credit score is the first step to getting your finances under control. This will include the following:

1. With your consent, your counsellor will obtain your credit report digitally from a credit bureau. Your counsellor will treat your results with the utmost confidentiality.
2. Your counsellor will then help you check the report for accuracy. Not familiar with credit scores? Read our guide to credit scores. If you notice errors on your credit report, it’s essential that you lodge a dispute with the credit bureaus as soon as possible. We discuss how you can do this later on in this article.
3. Your counsellor will then help you identify any negative factors affecting your credit score and explain how you can address them.

2. Reviewing Your Current Debts

Next, using your credit report, your counsellor will:

1. List all your outstanding debts. These include credit cards, vehicle loans, home loans/mortgages, and other liabilities.
2. Analyse the interest rates, minimum payments, and due dates for each account to get a sense of your debt obligations.
3. Compare your interest rates and terms to identify opportunities for refinancing or consolidation loans at better rates.
4. Calculate your debt-to-income ratio by dividing your total monthly debt payments by your gross monthly income. This will tell you how healthy your debt levels are relative to your income.

3. Creating or Updating Your Budget

Having an up-to-date, realistic budget is essential to keep your debt repayments and overall finances on track. Your counsellor will:

1. Look at your salary, wages, commission, and other income streams, as well as all your expenses, to give you a comprehensive view of your total income and expenses.
2. Help you to categorise your regular expenses, so you can understand and predict your cash flow.
3. Assess your emergency fund, if any, to look at your options for building a cushion for any unexpected expenses, without increasing your debt.

4. Setting Financial Goals and Priorities

Armed with your credit report, your current debts, and a realistic budget, you should set clear short-term and long-term financial goals. This will help you create a roadmap to financial stability and freedom. You should identify your immediate financial needs, such as replacing a broken oven or fixing a leaking roof, and future aspirations, such as paying off a credit card or building up enough savings for a dignified retirement.

Once you have a clear idea of your goals, you should look at the strategies that will get you to them. Your key focus here should be to reduce your debt burden while steadily working towards your broader financial objectives.

5. Debt Repayment Solutions

It’s important to prioritise debt repayment and to do so sensibly. The approach you choose can significantly impact your debt management plan. Here are two common approaches to debt repayment:

1. The “snowball” method of debt repayment focuses on paying off the smallest debts first, to build momentum and motivation. Only after the smallest debts are paid off and you feel like you are making progress, you would switch to the larger debts.
2. The “avalanche” method of debt repayment targets the highest-interest debts first to minimise your interest costs over time. Once you’ve made good progress with the highest-interest loans, you would look at lower-interest loans.

Read more about these two repayment strategies. If you’re struggling to repay your debt, you should consider other options like debt review, debt consolidation, or refinancing. These can help you streamline your repayments and potentially reduce your interest rates, saving you money and helping you eliminate your debt faster.

What are the Credit Bureaus and Where Do They Fit in?

Credit Bureaus Issue Credit Reports

Credit bureaus are organisations that collect, store, and manage credit information on individuals and businesses. They compile data from various financial institutions, including banks, credit card companies, and other lenders, to create a comprehensive view of an individual or a business’ credit history. The credit reports produced by credit bureaus will detail an individual or business’ borrowing and repayment activities, outstanding debts, and credit inquiries.

Credit Bureaus Also Generate Credit Scores

Credit bureaus use the information from your credit history to generate a so-called “credit score”. This is a numerical representation of your creditworthiness. Lenders and other entities will use these scores to make informed decisions about extending credit, determining interest rates, and assessing financial risk. For that reason, it’s vital to keep an eye on your credit score and to pick up any problems early.

Major credit bureaus in South Africa include Experian, TransUnion, and XDS.

What if I Pick Up an Error During My Health Check? How do I lodge a dispute?

Common errors include incorrect personal information, wrong account details, accounts that don’t belong to you, or incorrect payment statuses. If you find an error during your debt health check, you have the right to dispute it with the credit bureaus. According to Regulation No. R. 144 of the National Credit Regulator, credit bureaus must comply with the request to remove incorrect, adverse consumer credit information and information relating to paid-up judgments. 

Disputing an error on your credit report involves several steps:

1. Gather supporting documents: collect any documentation that supports your dispute. This might include bank statements, receipts, letters from creditors, or any other relevant information.
2. Write a dispute letter: Draft a dispute letter to the credit bureaus. Your letter should include:
   1. Your full name and address;
   2. A clear identification of the disputed item(s) on your credit report (for example, the account name and number);
   3. A detailed explanation of why you believe the information is incorrect;
   4. A request for the item to be corrected or removed; and
   5. Copies (not originals) of supporting documentation.
3. Submit your dispute: You can submit your dispute online, by mail, or by phone to each credit bureau. Each credit bureau has a separate database and a separate complaints process, so you’ll need to contact each one individually. Here are their contact details: 
   1. Experian: 0861105665
   2. TransUnion: 0861482482 
   3. XDS: 0116459100