Over-indebtedness is when a consumer cannot afford to repay their debt on time or where a person’s total debt repayments exceed their net income after living expenses. At the end of last year, a report by the National Credit Regulator (NCR) found that nearly 40% of consumers who had debt were behind with their credit and loan payments.
Also, according to a recent study by debt counsellor Debt Rescue, 43% of consumers revealed that they spend 50% or more of their monthly income to cover their debt, while 24.8% of consumers had gone into debt to pay for day-to-day expenses like food, transport and schooling. This trend could be influenced by the increased cost of living as well as the current negative economic climate together with the increased unemployment rate of 29%.
As such, many consumers either spend a bulk of their income to cover their debt or fail to pay their debt altogether. However, there are options available for consumers who are over-indebted as a last resort and as an attempt to get them out of debt. One such option is debt review, which is the process of re-structuring and managing debt, allowing a possible avenue for an over-indebted person to get out of debt over a period of time.
Debt review involves the appointment of a debt counsellor to assess a person’s outstanding debt and then puts in place a restructured repayment plan.
Should you be in a situation where you are over-indebted or know someone who is, then the following factors should be taken into account before opting for debt review:
- One cannot enter into any new credit agreements such as a personal loan, vehicle finance or retail clothing accounts.
- A person under debt review is liable to pay their debt counsellor fees in the first month of undergoing debt review and legal fees in the second month.
- From the third month an Aftercare fee of 5 % (ex VAT) is payable for every month that a person undergoes debt counselling. This is for the debt counsellors handling the entire administration process and will be charged until the account is settled.
- The interest rate payable on loan accounts will reduce, thus resulting in an extended payback period.
- One’s credit profile will be negatively impacted when undergoing debt review.
- One might not be able to be employed at certain intuitions that require a financially sound credit profile. This depends on the institution’s policy and is treated on a case-by-case basis.
Iemas, South Africa’s largest financial co-operative and responsible credit provider, encourage individuals to ensure that they pay their debt on time and never miss a payment. Iemas offers support to its members (i.e. individuals who use Iemas’ financial products), who are under debt review in building relationship with their debt counsellors. These relationships are aimed at giving better service to individuals who are under debt review and assisting them to expedite the rehabilitation process in good faith as per the National Credit Act.
Iemas’ level of support to its members, who are under debt review, is evident from the nomination that the co-operative received at the annual Debt Review Awards Gala event held in Mount Edgecombe in Durban, KZN on the 20th of July 2019. These prestigious awards recognise financial service providers who make a concerted effort to rehabilitate over-indebted individuals.
In addition to supporting its members who are under debt review, Iemas offers free financial workshops at all its participating employer groups. These workshops cover important topics such as how to compile a budget, how to save and how to manage debt responsibly.
Visit www.iemasfinancialservices.co.za, contact us on 0861 043 627 and watch our video on debt review and debt consolidation to find out more: https://bit.ly/2GD6i4E.
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