Debt stress when you suddenly earn less can be managed.
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Bayport Blog

How to deal with debt stress when you suddenly earn less

Published: May 10, 2021
Categories: Debt Relief
Tags: Debt Consolidation, Debt Relief

How to deal with debt stress when you suddenly earn less

When your salary is unexpectedly reduced, financial distress is a reality. But there are ways to cope.

The Covid-19 pandemic hit South Africa hard. A year after the level-5 lockdown kept most of us at home, many companies are still trying to recover, and many employees are still in financial distress. Thousands of people lost their jobs and many thousands more had to take a pay cut due to short time or unpaid leave. These are not easy times, but let’s look at what is possible when you suddenly have to cope with less money in the bank.

Understand the situation

Before you start making any plans, make sure you understand the situation:
  • Is the pay cut permanent or temporary?
  • If it is temporary, by when can you expect your full salary again?
  • Does less money mean fewer hours at work?
  • Can you structure your work hours to help keep your expenses down by, for instance, coming in three full days a week instead of five half days? This will help reduce transport costs and leave you with time to set up a side hustle.
  • Exactly how much is your new take-home pay?

Work your budget

Once you know how much your new take-home pay amount is, make a fresh list of all your expenses. The objective is to work out what your survival amount is; in other words, how much do you need to cover the basic basics, which is food and a roof over your head. Chances are that your new salary will cover that, which should at least give you some peace of mind. Now start adding in the next level of expenses, such as transport and debt repayments. How much of this does your new salary cover? Then add in the next level of expenses and again see how much you can afford. Keep following this process until you get to the point where your new salary no longer covers your expenses. Take a look at the expenses that cannot be covered, and decided which of them are still necessities, and which of them fall in the nice-to-have category. Remember, something can feel like a necessity but is really nice to have. Once you fully understand the shortfall you have to manage, you can start making plans. If the shortfall only impacts on nice-to-have items, such as entertainment, going out, beauty treatments, and drinks with friends, the solution is simple: until your finances improve, you will have to do without these things.

Money solutions

However, chances are that the shortfall will eat into some of your necessities as well. This is where the real work starts:
  • Contact your credit providers to discuss restructuring your debts so that your monthly payments are less. Remember that this will make your debt more expensive in the long run; therefore, as soon as your salary is back to normal, ask your credit provider to revert to the original agreement.
  • If you have several debts, look into consolidating them to give you debt relief. With settlement discounts and a lower interest rate, the increase in cash flow could be enough to make up your salary cut.
  • Reconsider all your subscriptions. See which of them you can do without and which you can downgrade to a cheaper package, either temporarily or permanently.
  • Sharpen your money management at home by planning meals, buying groceries using a list, and cooking and eating at home rather than getting takeaways. Pool resources with neighbours, friends or family members so that you all can benefit from discounted bulk offers.
  • Think about second income streams. For example, rent out your spare bedroom, use your car to run errands for other people for a small fee, or sell home-cooked meals to neighbours who work long hours. You can even start a vegetable garden or keep chickens and sell fresh eggs and vegetables to people in your area.
  • Supplement your income by doing freelance work after hours, or on the days when you don’t have to be at work. However, make sure whether or not you need your employer’s permission to do this.
Losing part of your salary is a terrible thing. However, it can also be an opportunity to relook your entire financial situation. Visit Bayport’s information centre for more ideas on how to do things differently to not only deal with short-term financial distress but to improve your long-term financial health.

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