hope for debtors

Are you struggling to meet your monthly debt repayments? Are you getting calls from credit providers and lawyers demanding money and threatening to take legal action against you?

Are you struggling to meet your monthly debt repayments? Are you getting calls from credit providers and lawyers demanding money and threatening to take legal action against you?

If you think you are alone in your debt woes, think again. There are more than 75000 South Africans who are taken to court by credit providers every month, says Luke Hirst, managing director of debt counselling experts DebtBusters.co.za.

Hirst's company is among a few regulated debt counsellors that are approved by the National Credit Regulator (NCR) to counsel consumers struggling to honour monthly repayments.

With the introduction of regulated debt counsellors in June last year, consumers are now able to go under debt review and avoid the large costs and stress of administration and insolvency.

Hirst said applications for debt counselling were increasing at such a rate that "it is difficult to keep up with our client base".

"We continue to grow at such a rapid pace that we are constantly training and recruiting more staff to help us deal with the influx of people," Hirst said.

He said the NCR "came into effect two years too late. People are already in huge debt".

Though Hirst's organisation receives applications from every racial and economic background in the country, many are black entrepreneurs or people in middle and upper management.

"Their levels of debt do not bode well for the sustainability of economic growth in this country, especially when you consider that they account for a vast majority of black buying power," said Hirst.

Hirst believes there are a number of reasons why South Africans should consider using a debt counselling service, but advises consumers to use those registered with the NCR to avoid unscrupulous administrators.

He said debt counsellors will:

l Assess an individual's finances and if the person is over-indebted they will place them under debt review.

During the debt review process, the credit providers cannot continue with any legal proceedings for up to 60 days, giving the consumer some breathing space.

l A debt counsellor will negotiate with your credit providers and will produce a debt restructuring plan that will be affordable.

l A good debt counsellor will look at your monthly budget and advise how savings can be made.

l They will check for any reckless lending by the credit providers.

But the debt review does not come free though Hirst says it is still cheaper compared with debt administration.

According to Andy Gilder of the Cape and Country Mortgage, a debt buster charges an initial once-off fee of R100 including VAT. This represents the application fee and credit report at R50 each.

Once the consumer is on the debt buster's programme, he will be required to pay 100 percent of their first monthly payment charged at the minimum of R2000 including Vat and up to a maximum of R3000.

The consumer will pay a monthly fee of five percent of the payment, up to a maximum of R300 including VAT.

Debt-strapped consumers who cannot afford this arrangement are excluded and referred to administration, which is more expensive and unregulated, says Gilder.

Besides the fees being high, Gilder says they are "nothing compared with debt administration" which can be a very costly process that includes interest on repayments plus lawyers fees.

These fees are also dependant on the total amount that is owed.

NCR's Peter Sotou said currently the regulator allowed debt counsellors to charge clients an application fee of R50 but the Act did not specify how much should be charged for rendering the counsellors' service.

Sotou said the NCR had agreed with the Debt Counsellors Association's proposal of the capped R3000 to take the case through counselling.

He said the regulator would soon announce its proposed fees.

He added that the NCR had set up a fund to assist over-indebted consumers and those earning less than R2500 who are unable to pay their debts. With debt administration, the black mark will stay on your record for several years and you cannot apply for car or home finance.

Under debt review, the debt counsellor is able to extend the term of the credit agreement and, under certain circumstances, reduce the interest rates.

But once you have applied for debt review, you must not incur any further charges under a credit facility, or not allowed to enter into any further credit agreements.