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Media Info
 Turning the worst four-letter word into the six-letters that spell wealth
12 December 2008
Four-letter words are always loaded – consider the emotions just a few evoke: love, fear, hate, lust and debt.
Amazing how that last four-letter word makes our hearts sink and our foreheads crease into a frown.
2009 will be the most difficult year most of us have ever experienced, to get through it with our lives, happiness, families and assets intact we have to learn the most astute skills of another four letter word – cope.
Around the world, headlines have for the last few months screamed: economic meltdown, recession, lay-offs, bank collapse, automaker crisis… each time we see those banner headlines, we wonder, how far away am I from this happening to me?
A way to avoid or manage debt is to master as much knowledge as one can and know the options if forces beyond our control push us beyond our capacity to cope financially. Very many of the thousands of consumers now seen by debt counsellors across South Africa are not people who have gone on wild, irresponsible spending sprees, they have lost a job, someone has become very ill or died. Eleven interest rate hikes since mid-2006 may have clobbered a salary that hasn’t risen as fast and all of a sudden you may face the prospect of being one of the 2 000 people each month losing their home or one of the 7 000 losing a car to debt collectors.
In the United States credit card debt has grown to roughly $822 billion and in November, 2008, 533 000 jobs were lost, the largest one-month drop in 34 years. And house repossessions are up 70%. Major retailer Wal-Mart’s new slogan is “Save money. Live better.” Bank of America has been advertising its “Keep the Change” debit card savings program and risk-free certificates of deposit.
In South Africa, in June 2008, 109 259 summons for debt were issued and 57 306 civil judgements for debt amounting to half a billion rand were passed, according to StatsSA, but one man escaped the net by using debt counselling.
Banks are fiercely pursuing those who owe them and civil judgements relating to money lent formed R208,4m or 36,1% of all such judgements in July 2008, whereas retailers were less aggressive with R61,6m or 11,3% of all debt judgements.
Debt counselling in terms of the National Credit Act has given new hope to consumers who in the past were given easy credit and then dealt with aggressively by the same lenders when the consumers failed to pay. Debt counsellors have to all be accredited by the National Credit Regulator and may only charge fees laid down in terms of the Act.
Andre Snyman, managing director of Consumer Assist, South Africa’s largest debt counselling organisation notes that the man “owed R3 004 985, including his bond. He was paying off R24 400 a month but the interest over 240 months was going to amount to R2 783 466 alone. In other words over 20 years, he would pay out R5 788 451.
“The debt counsellor restructured his debt after negotiations with creditors. His monthly payment dropped to R16 890 a month, which means total interest came down to R1 544 233 and the debt was reduced to R2 862 133 – including the debt counselling fees.
“Simply put, debt counselling means he will remove 92 months off his repayments, eliminate R142 852 debt, reduce monthly payments by R7 600 and the biggest saving will come in the R1 239 243 cut from interest rates – enough to buy a really nice second property. And after this process he will have a clean credit record.”
The fees charged by debt counsellors who are often accountants, bookkeepers, former insurance brokers or experts from the financial industry, are low and are added to the debt so the consumer does not face additional costs once he or she has liquidated his or her debt.
Since launching their website with an interactive debt calculator on it www.consumerassist.co.za and a call centre 0861 21 22 23, Snyman says they are seeing increasingly high traffic to the site and the call centre.
“When the National Credit Act came into effect we initially had an average of around 10 applications a day for debt counselling, that rose to about 60 a day in June and presently we are receiving an average of 190 applications a day now. In the beginning the average age for those most indebted was in their 20s and those earning R8 000 to R15 000, but now the average age of people visiting debt counsellors is 39.”
And it is now high earners who are most in debt. Research released in November 2008 from the University of South Africa Bureau of Market Research showed that the debt burden of South African households increased by 21% in the year to end-June to R1 139bn. The income group with the biggest debt burden earns between R500 000 and R750 000 a year. Their debt represents on average more than 135% of their disposable income and they use 34% of their disposable income to pay back debt.
According to the BMR, household debt represents on average of 82.3% of disposable income which means that R8,20 of every R10 earned by a South African goes to pay off debt.
If you’re in financial trouble, know your options:
What is the difference between Debt Counselling, administration and liquidation?
A:
- Debt Counselling: A Debt Counsellor restructures instalments to allow you to pay off debt while meeting your basic living expenses. Debts are paid monthly. You pay the debt counsellor an initial R50, then R3 000 for a single person or R4 000 as a couple.
- Administration: is a legal process where the instalments are reduced, but creditors only receive payment every three months. The term of repayment is much longer than under Debt Counselling. Debt must be less than R50 000 to qualify.
- Liquidation: is a legal process where assets are sold to try and lessen the debt and the Court appoints someone to manage your finances. This is costly and you will be blacklisted for 30 years or until the Court declares you rehabilitated.
Debt is like alcoholism or being diagnosed with a terminal illness, Snyman says, “first you are in denial, you think that if you ignore it, it will go away, but like a terminal illness if it is not treated it gets worse. And the same as with alcoholism if you don’t act to stop it, you will land up in the streets. Solutions are simple, dignified and give peace and clarity back to a family. It’s foolish not to seek help when one needs it.”
FOR FURTHER INFORMATION www.consumerassist.co.za 0861 21 22 23 debt counselling call centre
Andre Snyman - CEO - Consumer Assist
aurelia.espag@consumerassist.co.za / 011 654 6018 (Languages: English, Afrikaans)
Source: News Today
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