South African debt counsellors say the most creditors are still aggressive – especially with vehicles and mortgages. Most banks just a year ago were offering easy credit, now they’re seizing the homes and cars they gave credit for. New stats also show that 46% of people can’t pay their full rental each month either. Estate agent Vivienne Frank gives the example of a Johannesburg northern suburbs couple who have held a R2,5m bond on their home for some years, “he is a lawyer, she is a company executive, but they kept leveraging their bond for loans to fund a lavish lifestyle including overseas trips. They’re now in debt and have to sell the house, but the market has plummeted and they can only get R1,5m for the house, which means even after they sell it, they will have to pay the bank R1m.”
Andre Snyman, CEO of South Africa’s largest group of debt counsellors, Consumer Assist pointed out that many householders don’t realise this. “They think it is better to sell the house or car but don’t realise they still have to pay back any amount paying and not over a long period, but immediately. It is better for such individuals to immediately go under debt counselling so the terms of the loan can be restructured and they don’t lose the house or car.” However, he stressed, that it was critical for heavily indebted consumers to go for help before legal action was taken against them, “once legal action has begun we are constrained in how much we can assist.”
“There are 66 759 people being helped by debt counsellors in South Africa at present, that figure is growing at 7 000 a month and we estimate that this year those under debt counselling will grow by at least 300%. Debt counselling is working even though many creditors try to resist it.” He said they face challenges with some banks still trying to seize the homes of those under debt counselling, “I’ve personally flown to Durban and Cape Town to assist families where banks have tried this. Once an individual is under debt counselling, no one can touch his or her assets for the first 60 days while the debts are being renegotiated. After that, creditors cannot remove assets as long as the person keeps paying back, according to the restructured loan or credit agreement.” But potentially tragic situations still keep happening but with a caring debt counsellor can be managed.
Consumer Assist debt counsellor Patricia Schonburg told of a client under debt review who works for a major bank. “Her baby became very ill and went into intensive care and she needed to pay the hospital R3 500. When her brother transferred the money into her bank savings account, the bank that she works for and with whom she has an account took that money and put it into her credit card which has debt. Theoretically they can do that. “She phoned me, hysterical, it was the day before a long weekend and I spent the whole day negotiating with the bank, pointing out the crisis she was in until they relented. If she did not have a debt counsellor to assist her she could have been in serious difficulty.” Despite a worsening financial scenario and aggressive pursuit of loans, stores are still giving easy credit which exceeds consumer’s salaries, coercing them into potential debt traps.
Consumer Assist debt counsellor, Wendy Masegere tells of one major food and clothing retail chain that offered her “a R14 000 store card because I had a good credit rating. I didn’t want it because every day I see what easy credit does to people. I have a friend who earns R3 000 a month and was given credit of R4 000 by a fashion chain. “Very quickly people can get into debt as they accumulate cars, a house, credit card and store cards. If they lose their job or they go onto a shorter working week their ability to pay disappears.” Snyman says, “because the National Credit Act is new, there is still some confusion from consumers on how to use debt counselling and there are also areas where government and business need to develop systems to better help to those trying to get out of debt.” Snyman gives a step by step guide for a person who is in serious debt and needs help.
- Check to see if you are severely indebted on the debt calculator on www.consumerassist.co.za
- If you are in serious debt go to a debt counsellor: you can apply online or at 0861 21 22 23.
- Take all your financial records, including contracts, pay slips and bills to the debt counsellor.
- Pay a R50 consulting fee.
- Before you leave the Debt Counsellor’s office make sure you have decided with him or her how you will continue to pay off debt while the Counsellor negotiates with your creditors (this usually takes 40 to 45 days.)
- You can either pay direct or the Counsellor will give you details of a trust account to pay into of a Payment Distribution Agency (there are presently three in terms of the National Credit Act, the National Payment Distribution Agency, African Bank or CPE) which will pay creditors on your behalf.
- The Debt Counsellor is not allowed to accept payments on behalf of creditors.
- The disadvantage of paying direct is that within 24 hours of completing all documents the Debt Counsellor will notify all credit bureaus and creditors by sending a letter to them. What this means is that many companies shift your account into a new account number to monitor it. So if your Clothes Store account number is 12345, it may now became 78910 and this could mean your payments get lost – the store will not tell you the new account number, only the Debt Counsellor. Debt counselling is a legal process and the Counsellor is like your lawyer, so the other side won’t give details to you, just to the counsellor (lawyer).
- Also once the Debt Counsellor’s letter has been received your accounts get frozen including your cheque account so you can no longer spend on these accounts. The advantage of that is that creditors are not allowed to seize your salary which they can do if your salary gets paid into a cheque account.
- In the meantime the Debt Counsellor will help you open a debit card account.
- If you pay your bills through a Payment Distribution Agency (PDA) it operates in terms of the law and cuts out work and costs for you.
- Follow your case up every two weeks with your Debt Counsellor. Because there is extensive bureaucracy involved in negotiating with creditors it is unlikely that you will have firm repayment terms (or a Certificate of Balance) before 40 days after the initial application.
- No creditor is allowed to take action against you for 60 days after applying for debt counselling unless a court action has already been instituted against you.
- Once you are formally under Debt Counselling you will pay a PDA. As a rule, 20 days after money is deducted from your bank account it gets paid to the creditors.
- Ask your debt counsellor to provide you with monthly or quarterly statements to show progress in your repayment of your debt.
Snyman counsels: “Remember this, you got into financial trouble by not understanding the consequences of contracts you signed – you get out of debt and learn how to become wealthy by reading the small print and understanding how to manage money.”
0861 21 22 23 debt counselling call centre
CEO Consumer Assist
012 654 6018
Charlene Smith Communications
Tel: 011 646 7637 or 021 762 2656
Contact: Leila Beltramo
Tel: 021 762 2656