Debt: the kiss of death

2012-01-07 19:23

Recently I had two very disturbing conversations about the world of debt.

The first was a conversation with someone from the Credit Ombud about how debt administrators and debt collectors reap profit from debtors’ books.

Though this practice is less lucrative now that the National Credit Act has put limitations in place regarding interest charged, many debt administrators (often lawyers) and debt collectors live off their clients who spend the rest of their lives paying off their debts, so providing the company with a revenue stream for life.

It is in these companies’ interest that the client does not pay enough each month to settle the interest.

Unpaid interest accrues further interest which has a compounding effect so that the debt keeps growing and the chance of it being settled is negligible.

So each month the company receives R200 or R300 a month from thousands and thousands of indebted people, which, when you add it all up, becomes a tidy monthly income.

The second conversation was with the head of the financial advisory unit of one of South Africa’s leading financial institutions.

He told me that after discussions with a number of financial advisers, he estimates about 75% of clients are in serious debt.

Remember these are not people living on the poverty line but people who have a financial adviser.Middle-income people face lifestyle-related debts where they have lived beyond their means or lost their jobs.

Higher income earners typically have debt because investments have turned sour.

Many have speculated on property and other investments, borrowing significant amounts of money which they can’t pay back.

South Africa, as with many Western countries, is facing a very serious debt crisis.

Every day I receive emails from readers drowning in debt. Often there is little one can do to help as they have left the problem unattended for too long.

For those of you who are already too far into the debt cycle, start to deal with it now and get good advice so that you don’t end up keeping some debt lawyer in a Ferrari.

Contact the National Debt Mediation Association (NDMA) on 0861 11 6362 or speak to your bank.For those of you considering taking out your first credit card or buying a new car, heed the warnings and do not take on debt you cannot afford, otherwise it may cost you for the rest of your life.

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