Thousands of South Africans miss their debt repayments each month. In these tough economic times, where unemployment and inflation rate remains high, it becomes very difficult for the many  South Africans to manage their finances. It is not only luxury spending that forces consumers into debt, thousands of consumers are using debt for basic living expenses such as food and electricity. With the “in your face’ loan marketing and the easy access, it is easy to see why.

Loans, Loans Everywhere!

Banks and credit providers know how to market their product very well. They know who to target, how they will catch their attention, where to place and when consumers will need it. For many, credit is a necessity. Without access to loans, store accounts or credit cards, plenty more would go hungry in South Africa. When a consumer borrows money – they enter an agreement to pay it back, along with the interest and fees.

Paying back debt becomes part of your month-end routine. Your salary comes in, then all of your debit orders run off. Debit orders are a mixture of credit (loans, credit cards etc.) and service agreements (cellphone contracts, DSTV, gym membership etc.). If you miss a service agreement payment, very often the provider will just cancel the service e.g. DSTV will turn off their service at your home. However, when a credit agreement is missed, the process is a little different. You aren’t receiving a service form the bank, you borrowed money from them and most probably have already used it, and now you need to pay it back.

Borrowing From Peter To Pay Paul

Many South Africans have multiple loans and credit facilities from a number of credit providers. Often, as consumers try their best to make ends meet, they fall into a debt trap. They become dependant on loans and using credit to make it through the month. Many start using debt to pay off other debts. This is the first step in a dangerous cycle. There is a very good chance that a consumer who does this is over-indebted, meaning their income is not high enough to afford all of their debts and living expenses. Over-indebted individuals will at some stage start defaulting on their debt repayments.

I Missed A Debt Repayment, Now What?

If you miss a debt repayment, try to contact the bank and explain to them that you are struggling to make ends meet that month. Consumers that have had a tough month with high, unexpected expenses, must try to pay back the missed payment as soon as possible. If the problem is ongoing and you are struggling to catch up with the missed payments, it is best to speak to a debt counsellor and ask for help.

Your credit report is flagged whenever a debit order for a credit agreement is missed. You will be in one month arrears on that account. This will negatively impact your credit score at the credit bureaus. If you pay double the next month and catch up on your payments, your credit report will be updated. All credit information is stored for a period of 24 months on your credit report.

What Do Credit Providers Do When A Debt Repayment Has Been Missed?

Normally, credit providers will give you a few calls and send a few emails demanding payment for the account in arrears. The missed payment will also be seen in your monthly statement. If you are unable to catch up the missed payment but continue to pay monthly after that, you will still be in one months arrears for the duration of the contract.

Credit providers will charge you fees and penalties on payments that have been missed. These will get added to your current agreement and be factored into the repayments.

What Happens If The Credit Provider Takes Legal Action Against Me?

If you miss debt repayments in multiple months, the credit provider can initiate legal action against you. The credit provider will issue you a section 129 letter (in terms of Section 129 of the National Credit Act). This means that they have started the legal process against the defaulter. Once a section 129 letter has been served, the credit provider can approach the courts to enforce the credit agreement.

The section 129 letter advises the defaulting consumer to approach a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction, with the intention of coming up with a sound plan to repay the debts. The consumer has 10 days from the receiving the letter to use one of the available options.

The next step for the credit provider would be to issue a summons. If successful in the legal proceedings, credit providers could also enforce and Emolument Attachment Order (EAO), more commonly referred to as a garnishee order. AN EAO is an order that is sent to your employer which basically allows the credit provider to receive their money from your salary before it has even been paid to you.

How to Avoid Legal Action

If you are struggling to pay back your debts don’t wait before it is too late to do something about it. Approach a financial advisor or a debt professional, such as a debt counsellor, to get advise. A debt counsellor helps over-indebted consumers through the debt counselling process. Debt counselling helps consumers by reducing their monthly debt repayments through the restructuring of the consumers debt.

Take early steps to resolve your debts. Leaving it too late could result in legal action.