Consumers’ take-home pay decreases by 25%!
South Africans are facing daily financial challenges which are influenced by factors out of their control. Millions of consumers are drowning in debt, with an alarming decrease of 25% in take-home pay due to the pandemic and the fuel crises caused by the Russo-Ukrainian War. All this is adding to the stress and anxiety of lenders who are taking on ever higher debt burdens and monthly repayments, using more than two thirds of their cash flow to service debt repayments alone.
Consumer Debt Support https://www.debtcenter.co.za/ found that many South Africans are not aware of our products and services, which are available to them in their time of need when it comes to managing their debt. With the latest repo rate increase, more pressure on debt repayments will surely have an impact on their ability to borrow and pay back debt. More and more salary earners are taking on new loans to cover the financial shortfalls of monthly earnings.
Growing inflation and the inevitable increasing interest rates will cause further financial pressure, making servicing debt and covering monthly living and family expenses even more difficult. All this may result in consumers defaulting on their debt, thus causing a negative effect on their credit score, which directly impacts on their affordability when applying for new credit. The risk posed to creditors will determine their success when applying for new loans.
Negative factors are driving the economy, which is affecting consumers, with the latest blows being increasing fuel and electricity prices, groceries becoming even more expensive, short- and long-term insurance cover, and medical aids’ annual increases forcing salary earners to cut back on family spending.
Managing debt more easily
Since 2007, debt counselling has been the most effective way to cushion consumers in dire straits by allowing them to pay less on debt agreements. Debt counselling, benefits the borrower with agreements in all creditor sectors by reducing interest rates so that borrowers can repay their debt over a shorter period, saving thousands of rands while doing so.
The National Credit Regulator (NCR) has made it easy to verify if you are dealing with a registered debt counsellor. Visit this link and save it on your cell phone for future reference, or share it with friends and family members:
https://www.ncr.org.za/register_of_registrants/
The following are needed to verify the credentials of a registered debt counsellor:
- An NCRDC number;
- A valid NCR registration certificate;
- A contactable number that actually works; and
- A physical business address.
Consumers applying for debt counselling are on the increase with more consumers proactively applying for debt review. The benefits of debt review are available thanks to the National Credit Act, which assists and supports struggling consumers who find themselves in a situation where they are over-indebted.
When a consumer applies for a new loan and a bank or other credit institution declines the application, it is most likely due to affordability. This is a sign that the consumer is facing serious financial difficulty.
Debt counselling should not be entered into without properly researching and verifying the person you are trusting to assist you. Book a consultation with our offices for an in-depth assessment on your ability to afford your contractual debt agreements.
What is secured debt?
Your home loan is a secured debt. Your immovable property is the surety, and the insurance policy ceded to the bank is the security that will settle the home loan with the bank in case of your death. Your home loan is usually your largest debt.
What is unsecured debt?
The following accounts are examples of unsecured debts: Your credit card, revolving credit, personal loan and retail store cards. These are unsecured debts which dominate the debt exposure for most consumers. You did not give the bank surety when you were granted the loan. These credit facilities are accessed much easier by lenders and the credit limit is often exceeded due to overspending.
What credit criteria apply to vehicle finance?
Vehicle finance is an unsecured debt. At the date of default of the payment agreement, the bank can enforce a voluntary surrender before issuing a summons. The vehicle is therefore the surety for the bank when you default, and the asset will be sold at the bank’s auction to recover as much money as possible to reduce the balance on the debt. The bank never sells the vehicle for the full outstanding balance. After the auction, the account holder will owe the bank the balance owing on the outstanding balance. This does not cancel the outstanding debt after the asset is auctioned.
The bank can enforce their rights with two options on the default of vehicle finance:
- Voluntary surrender, or
- The sheriff of the court enforces a repossession order on the vehicle. The writ of execution is a court order granted in the High Court on the vehicle. The sheriff has an order to take the car and nothing you can do can stop the order of the court regarding this repossession.
27.53 Million active credit consumers
Stats released by the NCR show that 27.53 million South Africans are credit active consumers. This means they are clients who have had a credit card, personal loan, vehicle finance, home loan or retail store accounts.
In total, the outstanding debt amounted to R1.94 trillion, with 10.52 million consumers who currently have impaired credit reports with low credit scores. They are therefore not able to service their debts as per their contractual repayment agreements.
NCR internal stats for 2021:
The National Credit Regulator has offices that fulfil the duties as stipulated in the National Credit Act to monitor, investigate and enforce legislation. The NCR received a total of 63 834 complaints lodged by consumers, of which only 2% were abandoned. In total, R7 million in fines and penalties were imposed on entities that were found to be in contravention of the Act.
A total of 18 compliance monitoring activities, audits by external service providers and internal compliance were conducted on four registered PDAs (Payment Distribution Agents).
Enforcement action was taken on 41% of non-compliant debt counsellors.
The internal debt review departments of 36 credit providers were monitored.
A total of 698 debt counselors was assessed for compliance.
Registered PDAs distributed and paid over R11.81 billion to the credit providers of consumers currently in debt counselling.
Which accounts are eligible for debt review inclusions?
Credit cards, personal loans, revolving loans, overdraft accounts, vehicle finance, home loan accounts, store cards and store accounts, and micro lender accounts.
What is a revised budget?
Every household has a budget for a calendar-month cycle. These are the things we need to pay besides our debt obligations:
- School fees;
- Kids’ transport to and from school;
- Groceries (milk, bread, meat, fish, veggies, toiletries, cleaning stuff, dry and tinned foods, and baby needs);
- Rent;
- Electricity, water, and rates;
- Mobile, contract and prepaid;
- Internet service;
- Fuel costs travelling to work, and private trips;
- Personal insurance;
- Vehicle insurance;
- Savings;
- Medical aid and gap cover;
- Medial costs not covered by medical aid;
- Private medical costs;
- Income protector;
- Credit life insurance;
- Pet food and pet insurance;
- Dental insurance.
How does debt review work for over-indebted consumers?
The registered debt counsellor will take the following information into account:
- Income;
- Salary deductions;
- Net pay;
- Family and household expenses;
- Monthly creditors’ account obligations.
Once all the information is gathered, a new revised budget is set up with a reduced debt restructuring payment plan that is more affordable to the consumer. Lower interest rates help consumers pay their debt back over a shorter period of time.
Only once all the consumer information is recorded and calculated can an outcome be generated with a new payment plan that includes the new revised budget. This information is important to creditors so that the debt counsellor can reach agreements and acceptances on the new affordable payment plan.
It is misleading to promise indebted consumers they will pay 60% less or make promises that they can pay what they can afford. Every budget and every consumer affordability assessment is different, because every consumer’s situation is different.
In conclusion:
The good news is that you have options available to you when you can no longer pay your creditors due to salary cuts and other reasons. It is your responsibility to ensure you talk to a registered debt counsellor only. Verify the credentials of the person you are talking to. If you cannot verify the credibility of the person, then they are most likely not a registered debt counsellor. Walk away!
