More over-indebted despite help

2013-06-23 13:10
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Cape Town – The number of consumers getting themselves into a debt tight spot keeps growing despite a burgeoning debt assistance industry.

The latest figures released by the National Credit Regulator (NCR) showed a quarter-on-quarter increase of nearly 200 000 consumers with impaired credit records.

The number of consumer accounts increased from 69.53 million in the previous quarter to 70.73 million in the quarter to June 2013.

The options available to consumers to help them lighten their debt burden include Administration, Debt Counselling and Voluntary Sequestration.

Another less costly one is for consumers to try and negotiate directly with their creditors, said debt expert Moeshfieka Botha.

She, however, cautions that creditors are under no obligation to accommodate a debtor’s request for lower, more affordable repayments.

“When you incur debt you enter a contract with the creditor. This contract is legally binding and the creditor has the right to enforce all aspects of the contract, including repayment amounts.”

A Fin24 user recently asked if his account payments can be put on hold.

You can try to approach your creditors to put collections on hold, Botha advised, but they are under no obligation to help you.

“There is no legal way to force creditors to put collections on hold, and they are under no obligation to wait for you to sort out your finances, no matter who is responsible for the situation.”

A debt counsellor can however negotiate for lower repayment on your behalf, said Botha.

Another Fin24 user tried both Sequestration and Debt Review, but found that renegotiating with the creditor himself actually reduced his monthly burden.

Debt expert Ian Wason however said renegotiating through a debt counsellor would not only have reduced your payments, but also lowered your fees and interest rates.

“By coming out of the debt counselling process and negotiating with your creditors directly, you may have been able to reduce your installment, but your interest rates will go back to the original rate, therefore in the long run costing you a lot more money.

“Also after a period of time, the creditors may and in many cases will want to increase the installment you are paying to reduce the capital debt.

“This can come as a shock and if not paid will lead to legal action and the potential for a garnishee order against your salary,” said Wason, advising that the user rather discuss his situation with a debt counsellor, who will ensure he pays a realistically affordable installment each month, as well as paying off the actual debt rather than just servicing the interest and charges.

Roger Brown, attorney and CEO of Credit Matters, concurred, saying consumers should use the process of Debt Review to their benefit.

"Debt Counselling (also known as Debt Review) is part of legislation put in place by the government to assist the over-indebted."

With the cost of living continuously increasing consumers should seriously reconsider entering into debt contracts, said Botha.

- Fin24

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