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.
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.
Article courtesy of IOL.co.za under the personal finance section.
Written by Benay Sager, Chief Operating Officer at DebtBusters
Disclaimer: ES Brokers is not authorized to offer advice on debt counseling.
This article is intended for information purposes only.