Finance – Life On Debt Review
Most people are ashamed of their inability to handle money, and will choose to sweep their financial woes under the carpet – until they can’t access credit anymore. We find out what life post a debt review is like
“The one thing a debt review has forced me to do is live within my means. I suddenly realised how, for instance, buying clothes, food, bottles of champagne and furniture on credit led to me having very little respect for those things. Hell, I didn’t even take care of those items as well as I should have because it didn’t feel like I had actually bought them. I’ve since learnt that credit has a warped way of fooling us into believing that we have money, when we actually don’t,” says Ntando Ngozi, who surrendered to a debt review process when her bank account would be on negative just a day after payday. The 38-year-old personal assistant recalls how, “Being heavily indebted made life less meaningful — I literally saw no point in waking up and going to work. Don’t get me started on the many broken promises my children had to endure, and the tension in our home because I couldn’t even afford to buy tissues. I’d gotten to a point where I was so broke that not even a mashonisa, friends or family could come to my rescue because I’d defaulted on paying them back so many times.”
Money coach Winnie Kunene always preaches that debt problems are usually a result of our lack of discipline, adding that spending is more psychological than most people care to realise. “Before you choose your debt detox method, you need to drum into your head the fact that the problem has not been that you didn’t have enough money. Your problem has been mainly about not living within your means. Your behaviour got you into debt. So it is once again your behaviour that will radically change your financial situation fast — provided that’s what you want,” she says.
The beauty of a debt review process is that, because it’s authorised by a court order, it’ll protect you in many ways from aggressive credit providers who, at that point, could be in the process of seizing your assets or taking legal action against you. This process was established by the National Credit Act in 2007, with the aim of addressing South Africa’s enormous consumer-debt problem and is largely controlled by the National Credit Regulator (NCR). As it stands, South Africans use 76% of their salaries servicing their debt, while 24% is reserved on living costs. But as you can imagine, judging from the skewed split, most people end up not repaying their debts for fear of being unable to meet their daily living expenses. Some of the benefits of a debt review process include: Instead of debit orders gobbling up your entire salary, you’ll have some cash flow after paying the consolidated instalment
You will have no access to credit while your debt review process is active, meaning you’ll be forced to live within your means
The peace of mind of knowing that you can provide for yourself and your family.
COST IMPLICATIONS
“Most people are unaware that this process is a service and will therefore cost you money,” Kunene cautions. But, think of it as money well-spent because at the end of that process, you will have earned new and long-lasting money habits. Some of the costs involved include a non-refundable application and administration fee of about R350 plus VAT, assessment and restructuring fees that could cost up to R9 500 depending on the size of your monthly repayments, legal fees for obtaining the court order, as well as monthly fees of up to 8% of your repayments. You must discuss the entire process thoroughly with your debt counsellor, says independent financial planner Muzi Khambule. “Look into different restructuring options rather, as opposed to a formal legal process through the courts. It’s possible to get a consent order through the National Credit Tribunal at an affordable fee,” he says.
DEFAULTING AND WITHDRAWING
There’ll always be those people who default on this type of arrangement that was designed to help them in the first place. Should you wish to withdraw, you’d have to go to court to get an order stating you’re in a better space financially, and could be required to settle outstanding debt. A withdrawal fee, which you’ll be liable for, will also be required before a clearance certificate is issued out. If you happen to default while under debt review — something you should avoid at all costs — your credit providers will give notice to you, your debt counsellor and the NCR, stating their intention to discontinue with the debt review. “With the backing of a debt review gone, you’ll no longer be protected by the law, your debt counsellor may also pull out and you’ll still have the debt review tag attached to your name until you do things the right way,” Khambule warns.