A debt crisis solution: debt restructuring

Source: Debt Counselling

Dewald Visser

Cellular: 083 549 0601

Telephone: 012 346 7411

Email: dewald@cawoodlaw.co.za

Set against the backdrop of a worsening economic environment South Africans are experiencing a period of unprecedented financial strain. The numbers provided by Statistics SA are telling; more than six million people, half of South Africa’s entire labour force, are unable to pay their debts, 6000 vehicles and 2000 homes are being repossessed each month, close to 100 000 homeowners are currently in arrears with their bond repayments and  25 000 people are in danger of losing their homes. Financial analysts are describing our current situation as nothing less than a “Debt crisis”, exasperated by the fact that consumers had such easy access to credit before the National Credit Act came into effect in June 2007. Statistics reveal that South African consumers have been taking on more debt than they can handle and that with the ever rising interest rates disposable incomes are shrinking.    Moreover, despite popular belief, even high-income earners are financially vulnerable at this stage, due to high debt service rates and living expenses, even though they should have more income security.

With the staggering number of South African’s who are unable to meet their financial obligations debt-related stress are becoming a real problem in today’s workplace.  Employers tend to think that it really isn’t their problem how their workers cope with their personal finances. But sooner or later debt puts extra strain on businesses due to workers asking for raises, loans or advances on their pay checks. Studies have shown that employees who constantly feel pressured about financial constraints are less productive in their jobs due to increased levels of stress, anxiety and depression. Added to this a large amount of the average workforce has multiple garnishee orders eating away at their salaries, which not only creates more admin for the employer but more worker frustration, workplace tension, increasing absenteeism and sometimes even theft and fraud. In today’s economic environment it is of the utmost importance for employers to be aware of how to deal with an increasingly debt ridden workforce.

Considering that there have been more than 66 375 workers that entered into debt restructuring last month alone and that large companies are now enrolling the services of debt counsellors to encourage a healthier work force, it is safe to say that debt restructuring has proven to be an effective method to cope with the extreme financial pressure by easing the burden of monthly debt payments and giving employees more disposable income per month.

Debt restructuring explained

What most South African’s do not realise is that the National Credit Regulator implemented the debt review procedure to protect each citizens’ living standards and possessions against high debt repayments and creditors. According to the New National Credit Act a person may officially apply for Debt Counselling if they are unable to meet monthly financial obligations in a timely manner. Debt counselling is the simple process of working with a registered debt counsellor to restructure monthly debt repayments to an amount that one can reasonably afford. A debt counsellor will evaluate a client’s total debt and basic monthly living expenses in order to work out a new repayment structure. For example if your house bond is a R100 000, vehicle finance R50 000, credit card debt R30 000 and student loan R20 000 your total debt is R200 000.  This would mean that your usual monthly debt repayment would be in the region of R5 500.  Your living expenses each month including food, cell phone account, clothing, insurance, maintenance, travelling costs etc. amounts to for example to R7 000.  If you earn R10 000 it means that you are not able to cover your monthly debt repayments and your living costs, leaving you with a shortfall on your income every month.

After the monthly debt commitments are restructured and a proposed repayment plan is outlined the counsellor negotiates with the creditors for a lower monthly instalment, enabling any consumer to contribute at least 1% of their total debt monthly, as dictated by law. This means that for the above mentioned example a debt counsellor can lower the current amount of R5 500 to approximately R2 000, leaving you with an extra R1000 per month instead of the shortfall of R2 500 you had.

While a Debt Counsellor evaluates an application, the creditors will not be able to take legal action against the indebted person or repossess any of their assets. Working with a registered debt counsellor will show creditors that the person is committed to paying off their debt albeit over a longer period of time. There is also no increase to the current interest rates, sometimes even enabling a lower interest rate should a creditor’s current interest rate be outrageous.  While no more hassling correspondence with creditors will offer more piece of mind for both employer and employee. The most important factor is that cash flow and disposable income is re-established while making month to month finances easier to control. All the costs of the process including the debt counsellor’s fees are prescribed by the national credit regulator and are deducted from the monthly repayment structure, which means the client has no out of pocket expenses.

The constraints when entering the debt counselling process include that the indebted person are not allowed to enter into any more credit agreements and that they should open a savings account or any other account that does not have a credit facility. This will ensure that the client gets rid of all their debt and clears their record.  The person is also registered at the credit bureaus as being under debt review which means if any further debt is made the process will be stopped and any creditor may institute legal action while all debt will be repayable immediately.

Employees tend to wait until they are in dire straits before they confront their debt problems and are usually needlessly ashamed by their predicament, whereas they should rather seek the help of a debt counsellor as soon as they get behind with their monthly payments.  Moreover people try to remedy their situation by taking out even more debt which makes matters considerable worse as interest rates rise.  Going under debt review is a practical solution to get control back over your personal finances.

If you think your employees may benefit from Debt Counselling, get in touch and arrange for us to come in and address your staff free of charge or call us today to discuss your individual requirements or for free consultations.  Please contact Dewald on 083 549 0601 or (012) 346 7411 or e-mail: dewald@cawoodlaw.co.za

This article was written for Workinfo.com members