Buying a first car or property is a big deal for everyone. Owning a property is a life-long goal and a dream come true for many South Africans. Credit providers are strict when it comes to bonding a property. Banks know that bonds are expensive. Maintaining a house costs a lot of money. It also comes along with expenses such as renovations, rates and taxes etc.

Most South Africans Have Some Form Of Debt

Many South Africans have bonds, vehicle financing and other forms of debt. These other forms of debt are usually short-term debt. These are things such as credit card debt, store cards, personal loans, overdrafts and payday loans. All of these forms of debt are fine, as long as the consumer can afford to pay them back each month. To determine which debts or good and which are bad, read THIS.

Consumers should aim to have a little bit of money left over each month for savings. When you own a house or a car, unexpected expenses will pop up. These could be for repairs, security upgrades, services, breakages, replacements etc. Sometimes these unforeseen costs are low but sometimes they can affect your whole budget.

It is recommended that a savings pot is kept for these circumstances. Often this is called ‘saving for a rainy day’. Some consumers may be pushed to use more debt to cover these costs. This often leads to a vicious cycle which involves using more debt each month to pay off other debts. This can lead to a consumer becoming over-indebted.

On the other hand, many consumers use debt to live a lifestyle that is beyond their means. They use the debt to buy unnecessary luxuries, go on extravagant vacations, buy fancy cars and eat out at top restaurants, often to impress friends and family. This lifestyle is unsustainable if it is funded by short-term debt.

In both these cases, the over-indebted consumer needs a financial plan and a solution to help them with their debt, such as debt counselling. Debt counselling will help them by reducing their monthly debt repayments to an affordable amount. Debt counselling will also reduce the consumers interest rates and protect them from credit providers seeking legal action.

All Debts Are Included Under Debt Counselling

All debts are placed under debt counselling. Certain debts may be excluded under special circumstances. The debt counsellor will negotiate new terms with each of the consumers credit providers. All credit agreements (such as home loans, vehicle finance, personal loans, credit cards, store cards, overdrafts and payday loans) are included, service agreements (such as cellphone contracts, municipal bills, school fees, doctors’ bills) are not included in the process.

The consumer gives the debt counsellor power of attorney to act on their behalf in terms of their credit agreements. The debt counsellor has the right to negotiate on the consumers behalf. The debt counsellor does not pay off the debt upfront and leave the consumer with one loan amount, but rather negotiates new terms for all the currents debts with the credit providers. The consumer’s credit providers do not change, however, a new payment plan is worked out by the debt counsellor.

Instead of the consumer paying all of the debts by themselves each month, they will now only have one payment. This new, single payment will be paid to a registered payment distribution agent (PDA). The PDA then distributes this amount between all of the credit providers, based on the new terms secured by the debt counsellor.

Debt Counselling Allows Consumers To Keep Their Homes And Vehicles

The beauty of the debt counselling process is that the clients get to keep their homes and vehicles. The debt counsellor does not have access to these assets and does not have the right to sell them or take ownership of them. The agreement remains between the bank and client. In difficult circumstances, the debt counsellor may advise the client to sell a property or a vehicle. This would only occur of the client has to make drastic changes to their lifestyle and cannot afford even the reduced debt payment.

The aim of debt counselling is to pay off all short-term debt as quickly as possible whilst still being affordable to the client. Home loan and vehicle repayments can also be reduced, however, reductions are not as big as wth shorter-term debts.

If you feel that you may be struggling with your debt repayments, speak to a debt counsellor and let them run through a debt assessment with you.