The statistics on South Africans with impaired credit records are not good and consumers need to be proactive in managing their finances better, the National Credit Regulator (NCR) says.
Credit bureau records show that 46.4 percent of the country’s 18.6 million credit active consumers have impaired credit records, Nomsa Motshegare, the acting chief executive of the NCR, says.
An impaired credit record is one that reflects that:
* Your payments are in arrears by three or more months;
* You are a “slow payer”; or
* A debt judgment or an administration order has been granted against you.
“Our debt counselling statistics reveal that there were more than 260 000 debt counselling applications at the end of July, with an estimated 105 000 to 110 000 consumers under debt counselling with registered debt counsellors. Due to applications, terminations, consumers voluntarily surrendering from the process and consumers being rehabilitated, the numbers fluctuate daily,” Motshegare says.
The data make it clear that some consumers are battling to repay their debt, she says.
The factors that can lead to consumers becoming over-indebted include a change in their personal circumstances – such as a death in the family, divorce or retrenchment – ignorance of financial products, not planning properly, social pressure and funding an extravagant lifestyle by using store and credit cards, Motshegare says.
“Reckless lending and increasing interest rates may also lead to over-indebtedness,” she says.
A lack of understanding of the key terms and conditions in credit agreements, such as interest rates and other fees, can result in your taking on loan commitments that you cannot afford, Motshegare says.
“Debt not only wipes out your monthly income but also affects your ability to save for the future.
“If you want to break the debt cycle, seek advice as soon as you realise you are running into trouble; do not wait until after you have defaulted on any credit agreement,” she says.
Credit providers have the right to enforce credit agreements as soon as you default, by issuing a notice of your default.
The warning signs of debt trouble include using credit cards and overdraft facilities to pay debts and buy food or missing payments on some accounts in order to pay others, Motshegare says.
“Receiving letters and summonses from credit providers or lawyers means there could be a judgment against your name, and you need to take action immediately by contacting your creditors and seeking assistance.
“Missing repayments and hoping for the best is not a good strategy, as this will affect your credit bureau record, which will work against you when you apply for further credit or if you apply for a job with a level of financial responsibility,” she says.
* You can contact the NCR on 0860 627 627, email info@ncr.org.za or go to www.ncr.org.za
HOW TO TACKLE YOUR MOUNTING DEBT
The first step in tackling debt is to draw up a detailed budget that will accurately track your income, expenses and debt, Nomsa Motshegare, the acting chief executive of the National Credit Regulator, says.
“If your expenses far outweigh your income, it’s time to go on a financial diet. This means repaying your debt aggressively and cutting back on spending. Keeping a spending diary for at least four weeks can help to identify where you are spending money unnecessarily,” she says.
You should make paying off your debts a priority. “If this means getting a weekend job or selling some of your possessions to help you achieve this, do whatever it takes to improve your financial situation,” Motshegare says.
If you are struggling to pay off your debt and cutting back on expenditure does not seem to be helping, you must reorganise your debt. Contact your creditors and explain your situation. If they will not help you, remember that, in terms of the National Credit Act (NCA), over-indebted consumers can use the services of a debt counsellor.
If a debt counsellor finds that you are in fact over-indebted, he or she will negotiate lower instalments with your credit providers on your behalf, Motshegare says.
Undergoing debt counselling does not mean that your debts are cancelled, and failing to make payments will result in the termination of debt counselling. You will lose the protection granted by the NCA, and your creditors will be able to take legal action against you, Motshegare says.
Once your creditors have agreed to the repayment proposal drawn up by your debt counsellor, your debt counsellor must obtain a consent order from a magistrate’s court.
However, if one or more of your creditors do not accept the debt counsellor’s proposal, the debt counsellor must refer the matter to a magistrate’s court for a court order, Motshegare says.
WHEN DAYS ARE DARK ...
The National Credit Regulator has the following advice if you are having financial problems:
* Contact your credit providers and explain your situation. If your credit providers are not willing to help you, approach a registered debt counsellor, who will assist you to manage and restructure your debts.
* Never skip payments, even when you are undergoing debt counselling. If you do not pay, you could lose your home or car.
* Make paying off your home loan a priority.
* Ask the registered credit bureaus to send you a copy of your credit report. You are entitled to one free credit report a year per bureau.
* If you are not in trouble, start saving today. This will help you to stay out of debt in future.