DEBT: World Cup Gives Unexpected Help to Over-indebted
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“There have been reports of consumers getting deeper into debt by taking out loans for televisions or to buy soccer tickets, but we found no evidence of this. A consumer who is already in debt would find it impossible to get additional financial loans or the credit to buy new televisions. It is hard enough for those with very good credit records,” Andre Snyman, CEO of Consumer Assist, South Africa’s largest debt counselling company said in Pretoria today.
“What we have experienced nationwide is a slower month than usual and reports from consumers that more have found opportunities to make extra income whether making boerewors rolls near match venues, inviting the neighbours in to watch TV and have a braai for a small fee or creditors have given them a little extra time.
“We should not underestimate how positive the World Cup has been for goodwill and job generation. Some of those jobs will disappear after the World Cup but we are seeing a new sense of optimism and innovation among our clients who tend to be among the most depressed people in South Africa because of high debt.”
Gideon Nieuwoudt, manager of Consumer Assist Klerksdorp gave as an example one woman in the North West whose family “bought more televisions for her guest house to enable her to make extra money during the World Cup, people did not want to stay anywhere without a TV and risk missing a game.”
But that does not mean debt concerns are at an end, Hannalie van Tonder, manager of Consumer Assist’s Randburg branch said: “More clients are finding themselves in debt due to one income only – divorce matters, unemployment yet they are afraid to seek help.”
Delays in getting help put consumers in very dangerous situations because once legal action has been initiated against them they can only receive limited help from the debt review process.
Charlene Korff of Consumer Assist’s Centurion office said: “We receive 10 to 15 cases a month where clients have either been retrenched or lost commission, or their living expenses like water and lights and levy go up to such an extent that they are not able to pay their monthly installments. This puts them in danger of creditors rejecting the debt review process which in turn puts them at risk of losing their homes or vehicles or both.” She said, as an example, that a ban on overtime payments at one government department had seen substantial cuts in the earnings of many staff, “to lose that sort of income that families had relied on puts many in dire straits,” she said.
Nieuwoudt said he suspected there would be an increase in debt review applications after the World Cup, “not because of over-expenditure but because consumers were so fixated on this big event that they lost track of their finances. The main problem during this time with those already in serious debt is that they might miss payments on their current debt review which could lead to creditors terminating agreements with those in debt.”
Jannick Theron, legal adviser at Consumer Assist said many consumers had problems understanding debt review and also became frustrated with lengthy court delays slowing the savings debt review brings: “When you sign a contract for a loan or hire purchase it is a legal document – debt review changes the terms of the contract and so a court needs to approve those changes.” However, the court roll at all courts is full so it can take a year or more for the matter to get to court.
Snyman said: “This creates frustration among the over-indebted because they may have owed R50 000 on their car when they applied for debt counselling and a year later it is R60 000 while a court date is delayed. But once the court order is given they see payments readjusted and their debt rapidly shrinks.”
He gave the real example of Jenna Marks (not her real name) who applied for debt review in September 2008. The amount outstanding on the Certificate of Balance (a summary of all her debt) in October 2008 was R219 724.93 to pay off a bank loan. The interest rate was 14% a year and the installment (just to cover the interest) was R2 827.20 a month.
It took 17 months to get to court. The court order was granted in March 2010. If she had not gone under debt review the interest she would have owed from October 2008 to March 2010 would have been a staggering R52 741.13.
But once the court accepted the debt adviser’s debt rearrangement proposal Jenna was relieved to see that she had saved more than R20 000 in interest! The interest owed now for this period was R3 2658.98.
Her montly installment dropped from R2 827.20 to R1 040.68 and she will be debt free in 104 months.
Theron says that to achieve this sort of success, consumers must keep paying off the money according to the restructured debt agreement. She says, “if a client stops paying or pays inadequately, then the creditor can reject the entire debt agreement because the consumer acted in bad faith.” It is this that Nieuwoudt fears could happen in some cases after the World Cup where some, distracted by the games, failed to pay.
“We really need more measures to get the court process hastened,” Snyman said, “it is this that pushes many over the edge and sees them defaulting on credit agreements. But as for the World Cup, we should be thankful for the new energy and optimism as well as opportunities it has brought.”
Business News Sector Tags: 2010| Finance|