Credit is a valuable tool that can be used to build a future and meet family needs. Like all valuable services, if it is not looked after and controlled, it can cause problems. If things do go wrong, the best thing anyone can do is talk to their credit provider and if they can help, they will, says Old Mutual finance CEO Jan Moganwa.

Solving a money problem requires asking for help as soon as possible. The sooner a financial institution is told about an issue, the sooner they can help. According to the Old Mutual Savings and Investment Monitor, 62% of South Africans are cutting back on spending, and in these difficult times, it’s best to consider all the choices available than live with the worry of trying to sort things out on your own, says Moganwa.

One of the best ways of getting back on track is by debt consolidation.

“What many people don’t know is that debt consolidation makes debt controllable and can also save you money,” says Moganwa. 

This is because:

• Instead of having to pay many accounts, all the debts are placed in one loan. 
• One interest rate, instead of different interest rates on different debts, will be agreed on. Given that interest rates are at the lowest level in more than 30 years, customers are most likely to get a better rate depending on their financial position. The objective should ideally be to settle your most expensive debts first. 

“Debt review is another option available to over-indebted customers if debt consolidation is not a practical option. If you are deep in debt and have been missing payments for some time, your credit score might already be too low to qualify you for a debt consolidation loan. In this case, debt counselling may be your next best option. 

“In a debt review process, a debt counsellor assesses your outstanding debt and puts in place a restructured debt repayment plan working with you. The debt counsellor may go as far as renegotiating interest rates and repayment terms with your credit providers to have breathing space to tackle debts. Debt review is, however, a regulated process with pros and cons best discussed with a qualified specialist,” says Moganwa. 

People thinking about debt review should know:

• Only over-indebted people will be eligible. 
• It’s only for SA citizens.
• Only people with jobs can qualify.
• You can’t enter into any new credit agreements (loans or finance) while under debt review
• If legal action is already being taken to recover money, this cannot be included in an application for debt review.    
• It’s not free. Counsellors charge for their work, and attorney’s fees must also be paid as all applications must go before a court or tribunal before an order can be granted.
• All income and debt must be disclosed to the counsellor.
• Credit bureaus’ information will alert credit providers that the providers cannot approve any more loans for a person affected. 
• Repayment arrangements are made and agreed to if the repayment plan meets the credit provider’s conditions.
• An attorney applies to the court to make the payment plan an order of the court.
• If married in community of property, both spouses must bring a joint application for debt review, and both will be considered to be under debt review.

The advantages of being under debt review are:

• Only one amount must be paid to the counsellor every month. The counsellor then ensures that a payment distribution agency makes payments to creditors.  
• Collectors and creditors cannot harass you.  
• Your assets are protected from being repossessed by credit providers while you are under debt review.

“The aim of these actions is to help people regain control of their finances and pay off all their debts. You must be aware that these events can take years to sort out.”  

“Communication and an honest approach to problems bring solutions and guard your credit rating — something that helps build a solid future and create a legacy. As with all finances, having a budget can help avoid overspending. Budget properly, use credit well, and life can be easier and rewarding,” says Moganwa. 

This article was paid for by Old Mutual.