Debt review woes

2012-01-20 07:34

INDEBTED consumers under debt review have queried the fairness of the process, after finding they sometimes have to pay more than the initial amount agreed with credit providers.

A Gauteng government official wrote to Fin24 last week, complaining she had been under debt review since October 2010 but since last year her monthly payments have surged by 21%.

"My total debts amounted to R150 000 (when she initially entered the debt review process) and I had to pay the debt counsellor R1 980 per month to distribute among my creditors," she said.

"But now, as I check my monthly statements from my creditors, it shows that all my debts have increased drastically and this is frustrating me as I was told that being under review would decrease my debts.

"What must I do, because I just want to make one payment that decreases all my debts... It is absurd that my debts are now close to R200 000," the reader said, adding that since last September she has been forced to pay R2 400 per month.

Another reader complains that going under debt review was the "worst mistake ever".

"We went under debt review in November 2010... I would just like to find out, since the NPDA distributes the monies, where do they get the information as to which accounts the monies should be distributed (to)?

"I am asking this because they take legal fees whenever they want, meaning that the creditors aren't paid in accordance with the court order," the reader said, implying this made consumer payments rise dramatically.

The debt review process has been punted as a good idea because consumers do not have to pay the full instalment due to their creditors, making it more affordable to pay debt.

Higher fees

Paul Slot, the spokesperson for the Debt Counselling Association of South Africa, admitted the increase in monthly payments could be related to legal fees and interest rates.

"But the credit industry has agreed that legal fees and interest rates should be reduced. I would urge consumers to use concessions that credit providers have entered into with industry bodies," Slot said.

He declined to comment on specific cases, preferring to address the matter in general terms.

The National Credit Act, which came into effect on July 1 2007, makes provision for debt counselling where overindebted clients are assisted to restructure their debts according to the rules as set out in the act.

Through the code of conduct administered by the National Debt Mediation Association (NDMA), the credit industry has agreed to make concessions that go beyond the law to assist overindebted consumers.

These concessions include interest rate and fee reductions as well as term extensions.

"But the courts will not allow more than 60 months' term extensions," Slot said.

The NDMA is a non-profit organisation, which was established by the credit industry to provide debt mediation services in terms of the Credit Industry Code of Conduct to combat overindebtedness. It has been approved by the National Credit Regulator.

NDMA CEO Magauta Mphahlele said consumers should inform their credit providers as soon as they experience or anticipate they will experience payment difficulties.

If consumers find this process intimidating or are not sure who to approach, Mphahlele urges them to contact the NDMA which will provide them with free advice and the relevant channels to follow within credit provider institutions.

"If they are under debt counselling, they should consult their debt counsellor. If after approaching the credit provider a consumer is unhappy with their response, I urge them to contact the NDMA for assistance," Mphahlele said.

What is debt review exactly and how does it work?

Indebted consumers will apply for debt review with the help of a registered debt counsellor or consultant. Consultants will need to look at all their financial information, including income, expenses, assets and liabilities. They will then check to see whether they are overindebted.

The debt review process can take up to 60 working days. Once all the information is consolidated, the debt counsellor can determine if consumers are overindebted.

Where and how do you start?

If you are overindebted, you can make some painful lifestyle changes, such as starting to work through a comprehensive budget to cut back on expenses. It could mean finding another home for expensive pets, getting rid of DStv or no more extravagant nights out.

You might even need to sell your dream house, second car or the motorbike you can really do without. It all depends on your circumstances, but with perseverance you can pay off what you owe and become debt-free again. The choice is yours.

What does the debt counsellor do?

For those who qualify for debt counselling, the debt counsellor will prepare a debt restructuring proposal to credit providers.

 - Fin24 

  • Nico - 2012-02-09 08:59

    It astonishes me the way consumers think. If you pay less than your original installment, then of course your debt would increase. Only when you smaller debt gets paid off then that installments get paid over to your remaining debt which of course then cover both interest and capital. It is neither the debt counselor nor the Credit Act’s fault if your credit providers try so suck the last cent out of you. It is far in their capabilities of credit providers to reduce your interest rate and cut on fees charges to assist the over indebted consumer but they which not to do so.

  • Hein - 2012-02-27 11:00

    This is a very poorly written article. Debt review works well for any individual who can make a reasonable offer to creditors. Payments are reduced without exception. Debtsafe averages an average reduction of approximately 50%. Either the DC did not know what he/she was doing or the consumer is not open and honest about what really happened. Something is wrong with the facts provided in this article and it does not correspond with what we at Debtsafe is experiencing.

  • gerald.rodrigues3 - 2012-06-13 08:13

    It should also be borne in mind that many creditors do not change their internal systems (or statements)until such time as they receive a Court Order. This is in spite of the fact that they may have accepted the proposal presented by the debt counselor. The reason for this is that many consumer's renege on the reduced payment plan, which would require the credit provider to change their records back to the original agreement. Hein is 100% correct, "Debt review works well for any individual who can make a reasonable offer to creditors."

  • ishmael.khuele - 2012-08-27 11:19

    does a councillor show you a proposed plan before applying the will he /she negotiate with your creditors,present the payment plan duration before you sign anything

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