| Differences between Debt Counselling and Debt Consolidation |
|
Debt Counselling serves to instil in the mind of the client, a cash only life style and concentrates on the repayment of existing debt over a period of time, through a structured payment plan without pressure from credit providers or threat of repossession of assets! You are protected from your creditors under debit review which was set out by the National Credit Act! Debt Consolidation puts together all your existing debt into a single facility which is obtained from a credit provider. You then make a single monthly payment to a single credit provider. The interest rate may be lower than, for example, credit card rates, but the repayment period will be longer. The down side of consolidation is that the credit provider will require collateral for the facility and will insist that you bond or re-bond your property or other suitable asset. If you default you will lose all your asset/s which will be sold off to repay the consolidated loan.
|
Consumers drowning in debt
| 
| 
Massive escalations in debt are crippling South African consumers, with about 150 000 people expected to be under debt review by Christmas, according to the National Credit Regulator.
Manager Peter Setou said 1.3 million South Africans had fallen into arrears, with 93 000 under debt review.
Currently about 100 000 people who have sought debt counselling owe in the region of R20 billion, of which R12bn is mortgage debt.
Andre Snyman, CEO of Consumer Assist, said that even if the economy began to show an upswing, the number of consumers applying for debt counselling could be expected to continue to rise for a period, given the lag that occurs.
"It is apparent that things are becoming worse rather than better in terms of consumers decreasing their debt," said Snyman.
He said people were using up reserves, for example savings and investments.
However, they ended up with no choice but to seek help through debt counselling when they found they could no longer manage their debt.
Randall Adams, CEO of Ubuntu Debt Rehabilitation, said a serious message concerning over-indebtedness needed to be sent out as more and more consumers were drowning in debt.
Middle to high income earners were the ones who were seriously in trouble, he said, with expenses exceeding income.
Franciscus Haupt, director of Pretoria University Law Clinic, was quoted in media reports as saying the poor were coping better than their wealthier counterparts.
"They've learnt how to do it," she said.
"Usually debt is the result of the ostentation of the nouveau riche."
Haupt said those attending the Law Clinic for counselling had an average of 10 creditors, although some had as many as 16.
Unisa agreed that debt is a disease of affluence, with research showing that most indebted consumers were those who earned R700 000 per annum and upward.
Debt review: how it works
What does it mean to go under debt review?
The consumer applies for debt review with the help of a debt counsellor or consultant. The debt counsellor will explain to the consumer what debt review is.
The consumer completes and signs a debt review application form, or Form 16. This, together with supporting documents, is handed over to the debt counsellor or consultant.
The details on the Form 16 are captured immediately.
Within five days (normally sooner) all creditors are notified with Form 17.1 that a consumer is applying for a debt review, which begins the process and protects against legal action by creditors.
The debt review process takes 60 working days. The creditor has five business days in which to provide information on the consumer.
This is checked against what the consumer presented to the debt counsellor.
After five days, the creditor is reminded to give feedback.
If the debt counsellor does not receive confirmation from creditors, he may presume that figures provided by the consumer are correct.
The debt counsellor will now determine if the consumer is over-indebted.
The debt counsellor prepares a debt restructuring proposal to the creditors. All creditors have 10 days in which to respond.
If there is no response, the creditors will receive a reminder and another five days to respond.
The proposal will then be sent to the Payment Distribution Agency to begin the distribution to creditors.