Recent statistics on the number of consumers who have fallen behind on their debt repayments for vehicles and homes make for difficult reading. It is now estimated that the number of vehicle and home loan accounts that will fall into arrears will reach unprecedented heights.
Benay Sager, Chief Operating Officer at DebtBusters, South Africa’s largest and leading debt counsellor says that if you’re struggling with your finances and have fallen behind on paying for a home or vehicle, there is no reason to feel ashamed.
“Avoiding phone calls or ignoring letters of demand from lenders is a common reaction when people feel mired in debt, but it’s not a solution. There are options, but it is important to act before you face the possibility of having your house or car repossessed.”
Debt counselling is one of these options, and arguably one of the best options that allow you not only to retain your assets, but also secure better payment terms on them.
Debt counselling is an effective and well-regulated industry. It was introduced as part of the National Credit Act in 2007. It’s a way of helping over-indebted or soon-to-be over-indebted consumers repay what they owe through an affordable repayment plan.
“If you are feeling trapped by debt or are avoiding your creditors, you should get help. One of the cornerstones of debt counselling is that you can include your assets in the process. In fact, more than half of the consumers who sign up to debt counselling do it to secure their assets.”
It works like this:
- A registered debt counsellor will do a financial assessment to determine how much you owe and whether debt counselling is a potential solution.
- If it is, you formally apply for debt counselling. The debt counsellor will then inform all your creditors and credit bureaus that you have applied for, and are undergoing, debt counselling. Once they are informed, creditors deal with the debt counsellor rather than contacting you directly, which should help ease some of the pressure.
- The debt counsellor then negotiates reduced monthly payments on all credit agreements that fall under the National Credit Act, including vehicles and home loans. This is done within agreed industry parameters and what you can afford. In most cases, interest rates for vehicles and home loans could be reduced to repo rate plus 2% through renegotiation with lenders – this equates to 5.5% at the moment.
- Once the more affordable repayment rates are negotiated, the ‘rearranged debt’ is approved by a court or the National Consumer Tribunal. This confirms that the creditors have agreed to the rates and cannot change them for the duration of the debt counselling.
- You then make one affordable payment each month, which is distributed to the creditors via an independent payment distribution agency, also regulated by the National Credit Regulator.
- Reputable debt counsellors have a client-service team that is available throughout the process to offer help and support.
Debt counselling usually lasts for between three to five years, depending on the amount of debt, the rates the debt counsellor is able to negotiate and what you can afford to pay.
On completion the debt counsellor issues a clearance certificate confirming that all of the accounts listed in the agreement are paid up. Home loans are the exception. These do not need to be fully paid up but must be up to date.