Borrowing to pay debt: recognise the cycle

Borrowing to cover a repayment can solve today's shortfall while adding another bill next month. If the same gap keeps returning, check the whole budget before taking on more credit.

Recognise the borrowing cycle

A common pattern is using a personal loan, credit card or overdraft to cover other instalments or essential spending. When the next payday arrives, the original bills are still due and the new borrowing needs to be repaid too.

For example, if your monthly income is R2,000 short of essentials and existing repayments, borrowing R2,000 does not remove the recurring gap. The next month still needs a plan for that shortfall, plus any repayment, interest and fees on the new borrowing.

Check what the new agreement would change

• Does it settle and close existing debts, or simply add another account?
• What are the interest, fees and total amount payable?
• Can you afford the new payment after essential living costs?
• Would you need to use credit again before the following payday?

A consolidation loan is a different proposal from repeatedly borrowing to meet instalments. It still needs an affordability and total-cost comparison. Read the debt review, consolidation and administration guide.

Work out the size of the gap

Use recent statements to list take-home income, essential expenses and required repayments. Include irregular costs so the budget does not depend on every month going perfectly. The affordability calculator can help you organise the figures.

If spending can be reduced enough to cover the gap, make a plan you can maintain. If necessary costs and debts remain unaffordable, read about when a debt review assessment may be appropriate.

Act on arrears and notices

Contact the creditor about a payment difficulty and keep a record of any arrangement. If you have received a legal notice, share it with a qualified adviser promptly. The next step depends on the document and the stage of the account.

Use the debt collection guide for the separate collection stages, or read what to prepare after a Section 129 notice.

If you are already under debt review

New-credit restrictions apply during debt review. Speak to your existing counsellor about the shortfall and your current arrangement. Read the emergency guide and the borrowing restrictions guide before considering a loan offer.