Remedies for the over-indebted!

What remedies are available for the over-indebted?

The shame of having too much debt and not coping financially makes many people stick their heads in the sand and hope things will miraculously improve. They won’t!

Taking REAL POSITIVE ACTION is crucial to change.

 A Debt DIY Project

Getting out of debt on your own is not easy. Often it is impossible due to the DEBT SPIRAL EFFECT created to survive. Large arrears and the interest paid on interest makes this an expensive option. Payment arrangements with Credit Providers do not stop interest but rather rapidly increases the interest you owe and the amount you will have to pay back in instalments once the arrangement has stopped. These arrangements are a temporary fix that creates a bigger problem afterwards.

Administration

What is it?

This was the original debt relief system used in South Africa to tackle over-indebtedness. An Administrator is appointed to handle your financial affairs

How does it work?

A set amount is deducted from your salary monthly and distributed every three months which results in interest accumulating – FAST!

Who Qualifies?

To qualify for administration your TOTAL debt owning must be less than R50 000 and you cannot own any assets or property that can be sold to pay off your debt.

The Benefits?

Creditors may not take judgement on the debt under administration. You pay a very low amount making it very affordable.

The Negatives? 

You may not make new debt without the permission of the administrator. Administration is not regulated by any government body which has led to many dishonest administrators taking advantage of the very people they were meant to be helping by not paying off the debt and keeping the money for themselves. Many administrators disappear!  Administration usually lasts from 10 to 20 years. It is very difficult to get out of Admin and back into the credit market.

Debt Consolidation

What is it? 

Debt Consolidation is taking out ONE LARGE LOAN to pay off many others.

How does it work?

You apply for a Consolidation Loan with a credit provider.

Who Qualifies?

Anyone over 21 years of age who can prove they can afford the quoted monthly instalment and have outstanding debt to pay.

The Benefits? 

One can often secure a lower interest rate or a fixed interest rate and the convenience of one affordable monthly payment.

The Negatives? 

The payment term of this new loan will be longer than that of your outstanding debt before the Consolidation Loan (5 years on average). It works out much MORE EXPENSIVE than if you were only paying off the existing debt as you have to pay interest on interest.  Also, the temptation or need of spending the Consolidation Loan on things other than what it was intended for is too great which results in double the payments on double the debt.

Below is a calculation showing the REAL cost of a Consolidation Loan:

Original Debt:

DescriptionAmount BorrowedPlusAmount Owing
Loan 1R10,000.00Interest and feesR20,000.00
Loan 2R10,000.00Interest and feesR20,000.00
Loan 3R10,000.00Interest and feesR20,000.00
AMOUNT RECEIVEDR30,000.00OWINGR60,000.00

Original Debt with Consolidated Loan:

DescriptionAmount BorrowedPlusAmount Owing
ConsolidationR60,000.00Interest and feesR120,000.00
CASH RECEIVEDNO CASHNOW OWINGR120,000.00

Debt Mediation

What is it? 

Debt Mediation, also known as Debt Management or Dispute Resolution, is a debt solution targeted at South Africans who are struggling to make debt repayments but are not yet classified as over-indebted.

How does it work?

Companies offering these services promise to negotiate with creditors on the consumer’s behalf to initiate a repayment plan. The consumer thereby pays one monthly instalment to the Debt Mediation/Management or Dispute Resolution Company which then distributes the money over to the consumer’s creditors…hopefully.

Who Qualifies? 

Anyone over 21 years of age who can prove they can afford the quoted monthly instalment and have outstanding debt to pay.

The Benefits?

One can often secure a lower interest rate or a fixed interest rate and the convenience of one affordable monthly payment.

The Negatives? 

There is no form of legal protection or binding legal contract or agreement between the creditor and debtor which means that any given time the creditor can call the full outstanding balance of the debt concern into question, cancel the agreement in place and proceed with legal action (in terms of the National Credit Act no: 34 of 2005) against the consumer if the account in question is indeed in arrears.

Once the debt is paid, ITC is only updated and not cleared.

There is no recognized or accredited Payments Distribution Agency ensuring that the money is distributed to the consumer’s creditors.

The majority of these Debt Mediation/Management or Dispute Resolution companies do not hold qualifications recognized by the National Credit Regulator in order to act in the capacity to afford proper regulated practices or clearance of the consumer’s debt.

The fees charged to administer this “practice” are not regulated nor listed in a legal capacity or any regulatory body. They are calculated and done so by the Mediators own discretion.

The NCR has distributed a circular to the debt review industry (including credit providers and Payment Distribution Agencies) that they do not want any plans with regard to debt mediation to go forward.

In the past, a project called VDMS or Voluntary Debt Mediation was piloted between a few debt counselling firms and credit providers. This project was shut down by the NCR after pressure from the industry.

Another entity that has pioneered the concept of Debt Mediation – which is essentially debt review without NCR oversight or court involvement- is the National Debt Mediation Association. They face the challenge of not been allowed to assist consumers restructured debt without the use of debt counselling. To do so would fall outside the NCA.

Debt Mediation has several short fallings particularly regarding Section 103(5) of the NCA as well as the process only being mentioned in the Section of the National Credit Act which involves Debt Counsellors. This implies that the process could only be offered by a registered Debt Counsellor (if at all).

Debt Restructuring

What is it?

Debt Restructuring is a lawful process of debt rearrangement designed to help you when you cannot meet your monthly living costs and credit agreements. It is the LAWFUL RIGHT of every adult South African to have the benefit of this relief under the National Credit Act 34 of 2005. Debt Counsellors are the only people in South Africa who can offer REAL Debt Restructuring.

Debt Counsellors are bound by a Code of Conduct and monitored by the NCR to ensure that their service is in line with the law and is of benefit to you, the person the law was designed to protect.

Who Qualifies?

All persons legally living in the borders of South Africa, who are over the age of 21 and have an income can apply for Debt Restructuring. People who can’t meet their monthly credit repayments and their costs of living (or who may not be able to meet their obligations in the future) may apply. If you have missed even one payment or none you may apply. The sooner you seek help the better. Once legal action has started it is often too late!

How does it work?

First, we analyse your budget. With friendly and helpful advice, we go through your income, living expenses and insurances then we put together a manageable budget for you where we can see what you have available for debt repayments.

If there is a shortfall we can see if you are over-indebted. You will then benefit from the relief of Debt Restructuring. All your monthly debt repayments are consolidated into a single, easy, reduced monthly payment.

The benefits? 

All your Debt is paid in affordable single monthly instalments. Everything left in your account is yours! You will end up paying much less for your debt in total – you could literally SAVE THOUSANDS OF RANDS as we negotiate with your credit providers to lower the interest rates.  No more stress! You can afford to live and support your family knowing you have enough money every month. There is also a light at the end of the tunnel. If you make your monthly payments, you are 100% protected. Your case is closely monitored by the Debt Counsellor and once you are finished the process there is no lasting black mark on your credit record. In fact, your credit record is spotless! You can re-enter the credit market and make healthy debt, for example, a home loan or vehicle finance.

The negatives? 

You may not make new debt while under Debt Restructuring. You can withdraw if you can afford to pay your normalised monthly instalments or if you can settle your outstanding debt.

How long does it take?

Debt Restructuring is very personal – A plan is designed for YOU. Time periods vary depending on how much money you can afford to pay every month and the total amount of money you owe. Once your debt is paid off a clearance certificate is issued, and your credit record rehabilitated.

What does it cost?

An R50 application fee which is added to your first payment. That’s it! The cost of debt restructuring is built into your monthly repayment plan. We ask for no upfront fees. Our fees are exactly to the letter of the NCR published guidelines. There are no hidden costs. Fees differ from case to case. These will be explained in the application.

How can I apply?

Applying for Debt Restructuring couldn’t be easier. Our highly trained consultants assist you every step of the way, so you aren’t doing this alone. You can apply online, by email or fax, print online form, or in any one of our branches. Our consultants will even come to you!

 Choosing the RIGHT Debt Counsellor is VERY important…

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