National Debt Review Agency | Debt Councelling | Assisting over-indebted South Africans

People are divided on debt consolidation as there are two opinions on this aspect. Some say that since this decreases the credit score, it’s not a good idea. It’s true that the credit bureaus, as well as the creditors, consider debt consolidation a sign of financial inconsistency.

However, debt counseling bears no significance upon your credit score. Whenever you feel constrained by debts, you can always seek out counseling. Many reputed credit repair agencies offer this service for free. This is a good first step towards financial self-sufficiency

On the other hand, there are people who consider debt consolidation as a positive action. It’s true that this will initially register negatively on your credit report. However, in the long run you will benefit because you will get rid of your debts.

Debt counseling would be an excellent medium that helps you to decide whether or not to adopt debt consolidation as a solution.

Outstanding debt still very high

Johannesburg – South Africa has not yet shaken off the weight of the consumer-led recession.

At 78%, the ratio of debt to disposable income is still far too high for that.

In addition, it looks as if many consumers deliberately built up further debt in the Christmas period with a view to now applying for debt counselling.

Excessive debt can also have serious implication for the economy.

The current debt position of many South Africans has also raised concern about the brake that this could place on economic growth. But not all debt is bad.

Stanlib economist Kevin Lings says that debt is good if it is used by companies, government and individuals to buy assets that increase in value. That’s provided there is sufficient cash flow to pay off the debt.

Lings says it’s not always necessary for assets to exceed the debt, but then the consumer must still be financially able to repay the debt.

A consumer has too much debt if debt repayments hamper cash flow and he can’t repay all the debt in time. That leads to panic and tension, because of the number of unpaid accounts and the large sums involved.

The biggest mistake that consumers in this position can make is to ignore their debt.

How to take care of the problem

According to guidelines set up by the National Credit Regulator (NCR), consumers who feel the pinch of their debt must immediately contact the credit providers. Most credit providers will be prepared to receive a smaller payment, rather than no payment.

It is also important to discuss the financial situation with the family, so that the necessary adjustments can be made, especially if unnecessary expenditure on luxuries must be cut.

After that, it’s important to draw up a budget with a list of priorities for repayment.

According to the NCR, the essentials, like a home mortgage bond, electricity and insurance, must be paid first, then the day-to-day expenses.

Provision must be made in the budget to pay the most expensive debt off first. That’s usually debt on credit cards and personal loans, especially from a microlender.

If necessary, luxuries – like eating out, entertainment, alcohol or cigarettes, domestic servants, garden workers and gambling – must be eliminated in order to pay off the debt.

People who are feeling the pinch of debt must at all costs avoid borrowing money to pay off the debt. Further loans simply create more debt – so do not obtain more shopping cards or credit cards in an effort to get out of the debt.

For people who are deeply in debt and lose their jobs, the last resort is to use part of their package to pay the debt.

The NCR advises consumers to cut out all non-essential items. This builds discipline, and the money saved in this way can be used to pay the debt and can later be put away as savings.

Rather than cancelling insurance policies in an attempt to save money, try to cut out luxuries. Insurance policies should also be reviewed regularly, and the premiums should be adjusted if the value of the insured goods has fallen.

Another guideline from the NCR for avoiding excessive debt is to return articles to the credit provider if you can no longer afford the repayment. In this way, you will have far fewer problems than if the credit provider starts threatening to repossess.

In terms of the National Credit Act, consumers are entitled to return goods if they can no longer afford the repayment, if certain procedures are followed.

Luke Hirst, MD of debt counselling company Debt Busters, says that consumers must find out about their rights if they are threatened with repossessions and summonses.

In terms of the National Credit Act, credit providers must give consumers written notice and state what the options are, including bringing the payments up to date.

Before the credit provider is allowed to cancel any agreement, the consumer has the right to pay all arrears amounts.

Hirst says that South Africans are still burdened by too much debt, and the only way they can be helped is if the interest rate is cut by a further 1,5 to 2 percentage points.

Hirst thinks it will be still be more than five years before the debt crisis is completely over. At present, 11m of the 18,7m active credit users are a month or more in arrears with their debt.

Lings says the lowering of interest rates makes it easier to repay debts. He expects further debt consolidation and then a gradual improvement in debt positions.

- Sake24

A ground-breaking high court ruling will rein in the banks, but it comes too late for many who have lost their cars and houses.

Johannesburg – For many indebted South Africans, who have had their cars and houses seized by banks, a landmark high court ruling has come too late.

The court has dealt credit providers a stunning blow this week, ruling that they could not terminate a debt review process once a debt counsellor referred it to a magistrate’s court.

If a registered debt counsellor determines that you are over-indebted, your creditors cannot take any action against you while a new repayment plan is being worked out.

The counsellor has to put together such a plan (usually instalments are reduced and the payment time extended) and obtain approval from your creditors.

If creditors do not agree, the counsellor will ask the magistrate’s court to approve the plan.

The National Credit Act states that the debt counsellor should refer your debt review application to the magistrate’s court within 60 business days.  However, due to workload pressures on these courts, debt review matters may take months to be heard or finalised by the courts.

Some financial institutions then started to terminate debt reviews before the magistrate’s court has ruled on a repayment plan.

They would then apply to the high court to obtain judgement against consumers and start to seize assets.

According to recent research by the Debt Counsellors’ Association of South Africa, thousands of debt reviews have been terminated in this way.

“The banks have, until now, been acting with seeming impunity, says Alan Manshon, a registered debt counsellor with debt advisory and financial education group The Money Clinic. “The prevalence of these terminations is incredibly high.”

Banks were opposing the debt review court applications and then issuing termination notices before taking action in the high court.

“In essence, they were ensuring that it was financially impossible for the consumer to defend their action.”

The judgement is a victory for consumers who are over-indebted and have approached a debt counsellor for relief, says Robyn Hersch, an independent debt management consultant at Debt Comm.

“Provided the debt counsellor has complied with the 60 day requirement (to lodge the case with the magistrate’s court) as laid down by the National Credit Act, the over-indebted consumer will receive the protections afforded to him by the Act – namely the suspension of legal proceedings.”

However, the ruling comes too late for many.

In some cases, judgements have already been obtained from the high court and these consumers are now faced with forced sales of their property, says Manshon.

“It may be too late to remedy these matters for consumers whose properties have already been sold.  In other cases where judgement has already been granted, consumers would have to apply to the High Court for a recision of judgement.  This can be a very costly exercise.”

In his experience, many credit providers have seemingly being trying to thwart the debt review process since the implementation of the National Credit Act,

However, some credit providers have made significant strides in co-operating with the debt review process.

SA Home Loans have introduced escalating instalments, which allows the consumer to regain financial control without exposing the institution to excessive risk.

Standard Bank and Absa voluntarily withdrew a number of terminations in an effort to assist their clients, he said.

- Fin24