Why Consumers Apply
There is no denying that debt review is a fantastic way to deal with over indebtedness. If a consumer owes more toward his debts at the end of a month than he can cover (while still covering all his other basic costs) he is over indebted and can qualify to use the provision in the National Credit Act that allows him or her to apply to court for debt restructuring.
- While under debt review stress levels are reduced.
- A realistic monthly budget (made up with the help of a professional Debt Counsellor) makes provisions for monthly costs and savings.
- A single combined debt payment is made (less individual payments to various accounts in various amounts)
- Credit providers accept payment over longer time periods – which allows payment amounts to be reduced on a monthly basis.
- Credit Providers commonly reduce interest rates as low as zero % interest.
- Credit Providers routinely reduce or cancel account and service fees.
With such obvious benefits you might think that almost everyone would want to be under debt review. Well many hold back because although they might save thousands of rand in fees and interest across all their accounts they also are not able to use credit normally each month. They would need to switch to a debit card/cash life style. It is a big change in psychology. it is a return from the “i want it now” attitude to the “i will save for it” mind set. Most people only consider debt review once they have been turned down for further credit or find themselves in trouble with one of their creditors. Maybe they have even received a letter from one of the creditors saying you have 10 days to sort things out or to go talk to a Debt Counsellor. These are commonly referred to as Sect 129 letters.
Reasons for Needing Debt Review
In different countries and areas the reasons why consumers enter debt review vary slightly. For example: one UK a debt review organisation with nearly 300 branches across the country says they have found the following to be the main causes for consumers entering debt review:
In South Africa many families take on the financial burdens of their extended family or try to maintain 2 homes at the same time. This places a lot of financial pressure on people in an economy that has been doing badly. Ask around and see which of your friends got a 13th cheque. Not many!
Retrenchments have been on the increase over the last year or two as the economic downturn has hit home and as strike action (and reduced demand from China) has hit the mining sector badly. Government spending has to be curbed in 2016 to reduce the risk of rating agencies from saying bad things about the Rand and so this has also meant a reduction in new job opportunities.
Statistically when couples break up women come off in a worse position financially almost every time. Since financial strain is a common factor leading to break ups it is then common for women to need assistance financially when things change dramatically.
In South Africa where financial literacy is very low (on average) this has also lead to many consumers being caught off guard by over use of credit.
Half of all SA credit users are already over indebted according to stats from the NCR. That’s millions of people who qualify to make use of debt review. The question is will they? For those who see the benefits it can present them with a fresh start, a solutions to their concerns and a realistic way to improve their families financial future. For those who enter the process grudgingly ,as a last resort it can appear to be arduous. It is not. It has been for hundreds of thousands of people a life saver, a marriage saver and a sanity saver. It just also happens to be a buck saver too.