Wednesday, 29 July 2015

Debt review all the facts

I am often criticized for my criticism of the debt review process as a solution to #DebtRelief
Here are the facts:

1) Debt Review is a legal process of relief for over indebted consumers under the National Credit Act.
2) It is not the only form of debt relief available in South Africa, it is just the latest development and one that is promoted by Government.
3) Insolvency is another form of debt relief and practiced world wide with great success. In South Africa our insolvency law dates back to the 1930s and even before that SA had well developed insolvency legislation.
4)Debt Review is a perfect solution to over indebtedness when you have debt in the form of property (a bond) and a vehicle financed by the bank.

BUT!! Only under very strict conditions should debt review be applied to a problem of over indebtedness.

5)You may only apply for debt counselling and your debt may only be reviewed and placed under a payment arrangement or consent order by the court IF your creditors (the people you owe money) have not taken legal action against you.
Once they have, this option is no longer available. I criticize debt counsellors that exclude debt from a payment plan where legal action has commenced. So the consumer ends up with protection for some of his debt but totally exposed for other.

6) Debt Review offers the consumer no discharge (write off) of debt which is an integral part of any debt relief solution anywhere in the world.
Sequestration on the other hand does offer a discharge of debt.

7) Debt Review offers consumers very little relief in the form of interest rate reductions or a cessation of interest. If payments under a debt review plan are lower than the interest being charged, you will find that your debt will increase over time.
With a sequestration application, all interest charges are ceased.

8) Often credit providers may withdraw from negotiations or even when you have paid for some time. This is called a 'termination'. At this point there is very little a consumer can do and they are often left at the mercy of their credit providers.

9) Under debt review repayment periods are often extended far beyond the original payment term.
Here is an example and explanation why this is a terrible financial mistake:
Originally you take a loan of R10 000, you repay the loan over 36 months at a payment of R473 per month.
Under debt review your payment is reduced to R350 per month over 60 months. Now your repay R21 000 on a loan of R10 000. Now the in duplim rule would restrict payments to R20 000 but this is often "over looked".

Can you see why this is a terrible financial mistake?
Can you see why credit providers have commented that debt review is their preferred repayment method?
Because they are legally able to charge more interest and make more money.

9) Under debt review a consumer has no alternative or protection if he loses his income and stops payments.
Keep in mind retrenchments are a real threat in the SA economy.
Here again protection will fall away and the consumer will be at the mercy of his credit providers.

10) Under debt review the consumer has no protection should he die or become disabled and be unable to keep up payments.

12) Debt Review, often doubles the amount of outstanding debt you owe by extending your period of repayment, this is a huge price to pay just to hold on to purchases you have made on credit, including a house or a car.
Debt counsellors will often tell you to hold on to "assets" for example property and vehicles at all costs and we as South Africans are taught a property of your own is a must to be financially secure.
But what if you made terrible financial decisions when you bought these "assets" in most cases, people over pay for property and vehicles and they can barely afford to buy these items but they think they are making good financial decisions. If the bank approves your loan they must think you can afford it so they must be right? Holding on to these "assets" at all costs ties you to your other debt and it could just be the storm that sinks your financial ship.

Cutting loose and letting go of bad choices sooner rather than later is often better and offers you a fresh financial start.
"Experts" like to call these items "purchased on credit assets".
Its not an asset if you still owe the bank money. Your car is NEVER an asset unless its fully paid up, while you owe money on this "asset" the bank is the title holder and legal owner.
Your property is not an asset if you owe the bank money for your house. Its debt, simple as that!
An 'asset' in this regard is called "equity" in your property. Equity is the difference between what you owe the bank and what the property is worth. That is an asset!
But again people differ on what property is worth. You as the home owner might think your property is worth much more than it actually is, estate agents often over value properties. Just because the bank gave you a million rand to buy the property does not make it worth a million rand. I can't count the times I have seen banks financed peoples' poor financial decisions, not because they think you made a great purchase but rather because they know they can make you pay even if its a poor decision and you don't pay. You were risk assessed and you must have something else they like too. Your property is only worth what a person would pay for it, willingly at any point in time.
Example: You might think your property is worth R1 500 000. But if you can't sell it for that amount, its not worth that amount. Its only valued once you have sold it for a certain amount.

There is a place for debt review as a debt relief solution but only under strict conditions and I don't believe debt counsellors apply these conditions when they decide to place a person under debt review.
The goal of debt relief should not be to repay your debt, but to offer you total relief from all your debt.

I have said a lot on debt review and I am often criticized for my opinion on the subject but here are the facts.
Before I am criticized for promoting sequestration as opposed to debt review I need to point out that both of these measures have benefits and drawbacks and I will post a complete assessment on sequestration as well.

What is important for you as the consumer is that you must realize when you have too much debt and when you have to seek professional help from a #DebtProfessional that can offer you an holistic approach to debt relief.

Eugene Prinsloo
Meecham,Prinsloo & Associates
Personal Debt and Insolvency Practice

Call/Sms/Whats App: 0813166983

Tags: #DebtFreeIn90Days #Debt #DebtReview #DebtCounselling #Sequestration #ResetYourDebt #ExitDebtReview #DebtProfessional #SequestrationProfessional

Meecham, Prinsloo & Associates
Personal Debt and Insolvency Practitioners

We are not debt counsellors and we do not offer debt counselling as a solution.

Call/SMS/Whats App 0813166983
Fax 0867644392

Do you know anyone that struggles with debt? Refer them to us and we will take good care of them.
We are also able to offer you a referal commision, so talk to us and let us know who you know that needs help, just send us their email address and we will do the rest.