Flee the debt trap

2010-09-11 11:18

Getting into debt is relatively easy. But the reverse is true about getting out.

Unfortunately, debt is a fact of life, we all need it and we all wish we could get rid of it. To escape the claws of debt traps, some opt for debt counselling.

The National Credit Regulator (NCR) estimates that as many as 190 000 consumers have applied for debt counselling since June 2007 to date.

Dario Dosio, only recently former president of the Judicial Officers Association of SA (Joasa), says 140 000 cases have been filed with the courts but only about 10 000 have been heard.

This backlog of cases that are awaiting review at the magistrates courts across the country poses a threat to the rehabilitation of those consumers who are under debt counselling.

While the National Credit Act (NCA) affords legal protection to consumers, if the courts fail to process debt counselling cases expeditiously, many consumers are at risk of having their homes and other property repossessed.

Senior manager for education and strategy at the NCR, Peter ­Setou, says the NCA empowers the courts to make payment agreements between a consumer and a credit provider legally ­binding. “The quicker debt ­review cases can be dealt with in the magistrates courts, the quicker over-indebted consumers can get back on their feet,” he says.

To help alleviate the bottlenecks in the courts, the NCR, ­together with Joasa, started the training of magistrates and other court officials on the NCA.

Dosio says the slow processing of debt review cases in court system is caused largely by capacity problems, hence the need for the additional training.

This training is expected to help accelerate the review of debt counselling cases.

Setou says: “Without the protection of the debt review process or the matter being before court, consumers face the risk of their assets being attached by credit providers who seek to recover their debt.”

To illustrate the gravity of the debt repayment challenge, the National Debt Mediation Association (NDMA) estimates that 45% of the 64 million credit ­accounts are in default.

Setou says overindebtness is caused by situations such as:

  • Reckless lending by credit providers – conduct prohibited by the NCA.

  • Changing financial circumstances such as unemployment, divorce or a breadwinner’s death.

  • Access to sophisticated financial products, such as credit cards, by consumers who are less knowledgeable about the cost ­implications.

  • Consumers living opulent lifestyles they cannot afford.

Chief executive of the NDMA Magauta Mphahlele offers some tips to consumers who are under debt counselling, to speed up ­their recovery. She says consumers should:
  • Pay the agreed amount to creditors on the agreed date.

  • Keep the proof of payment in a safe place.

  • Regularly check with the creditors that they have received the payment.

  • Contact your debt counsellor immediately if you anticipate problems with making the agreed payment.

  • If extra money becomes available, use some of it to pay in order to reduce your debt.

For advice on debt-related matters, consumers can contact the NCR at 0860 627 627 and NDMA at 086 111 6362

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