đź’ˇ Drowning in debt? Ask a debt counsellor anything

Smart Living
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If the rising cost of living has your budget at a breaking point, you aren’t alone, and you don’t have to navigate it alone either.

David O’Brien, a qualified actuary, registered debt counsellor and founder of Meerkat, is on DMC with practical advice to help you understand how to regain control of your financial future. David can respond to any queries or concerns that you may have about the debt counselling process or over indebtedness in general. He can also talk about the specific circumstances where you can legally be removed from debt review, as well as the common reasons why consumers are refused credit.

Leave a question for @dbobrien below.

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Hi, is it possible to request a reduction in the interest rate on a loan? Would one have to prove a certain level of financial struggle or change in circumstances since the loan was taken? I have also seen that one can make affordability complaints to the lending institutes which can result in refunds/reduction in debt in the UK, is that a thing in South Africa? Thank you.

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Hi there, thank you for the question.

Generally, banks stick to their contract terms.

But, most banks do have hardship teams where you can request assistance. You can check online for their contact details.

However, the assistance often reduces the monthly repayment, and extends the term of the loan. This brings short term relief, but increases the total cost of the loan. You can ask for an interest rate reduction, but they are generally less keen on that.

When loans are first granted, banks are compelled to do an affordability assessment to confirm that you can repay the loan. If your circumstances subsequently change, and you can no longer afford your loans, then you are over-indebted and qualify for debt review. In that scenario the debt counsellor can negotiate with the banks regarding all your loans. Similar to the scenario above, the first step is to reduce the monthly repayment and extend the term of the loans. BUT, in addition to that step, the debt counsellor is also empowered to negotiate a reduced interest rate, which reduces the total cost to become debt free.

The debt counselling regime in South Africa is a legislated and regulated assistance program for struggling consumers, so is the first port of call here.

The UK does not have the same legislation, so the assistance is discretionary between the banks and the customers.

I hope this helps.

Regards, David

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Good Day, I’m currently looking for a way to get debt free. I have a personal loan, overdraft, a credit card and they are all maxed out. Is it better to get a consolidation loan, I’m really not keen on debt review as I think I’m better able to deal with one lump sum for all these loans. Please advise

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Hi David

Why is it so acceptable and easy for all the financial institutions to sell and share your personal information with so called “debt collectors” or “attorneys” without your consent or even being made aware of this.

Why can a company give or sell your data to multiple 3rd or 4th parties?

these parties then obviously just harass and bully you to comply to what they think without checking with you. When you don’t comply, you get black listed with no recourse.

I have complained to the regulator, but they do not seem to be really interested.

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Hi there, it is a great idea to strive to be debt-free, as you can see the interest that you pay each month as an extra tax on your salary, which is dragging you back.

The first step on the journey is to set a household budget. You need to keep your expenses to a bare minimum to allow some extra each month to go towards the debts.

You choose an account to focus on, and each month you allocate that extra amount from your budget to that account. When that account is settled, then you take the total amount that you had been paying to that account, and then you apply it as an extra payment to the next loan on the list. And repeat until the debts are settled.

There are two methods to choose the first account to focus on. Either the 1. lowest balance, or 2. the one with the highest interest rate.

Method 1 is called Snowball, as you feel the wins quickly each time an account is settled. Method 2 is called Avalanche, as it knocks off the total debt more quickly, but the first account may take a while to settle.

Once the debts are all settled, it is really important to then take the monthly amount you had been paying on debt and apply it to a Savings account, so that you have an Emergency Fund. From there you will be well on the road to financial freedom.

Consolidation Loans offer the possibility of a lower interest rate, and the convenience of a single repayment. However, in my experience these loans are not that commonly granted by the banks. If you have a home loan with an access bond, an option is to consolidate the debts in there. HOWEVER, many people forget to pay the extra amount into the bond, and then proceed to max out the credit cards again, thereby ending worse off.

The hard part for many people is to find the extra budget to begin the debt reduction journey. BUT, that is the part that needs to be done.

Not everyone qualifies for debt review, as you have to be over-indebted.

If you consider the above method to be a bit like a “Debtors Anonymous” journey, a bit like “Alcoholics Anonymous”, the road is hard and requires significant personal commitment, but the rewards are great. Continuing that metaphor, then debt review is like a rehab facility. You get an environment where the better behaviour is forced upon you. Both roads get you to the goal, but it depends on how self disciplined you are.

I am not here to plug my company, but you can find a budget template on the Meerkat website, which will help you on the Snowball or Avalanche journey.

Good luck with the journey to financial freedom.

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Hi there, thanks for your question.

When you borrow money from a credit provider, you enter into a credit agreement. All the terms of the loan are included in that agreement. These terms will cover what can happen in the event of the customer not performing their side of the agreement.

The journey starts with the customer receiving the loan amount, and then continues with the customer making the required repayments until the balance has been settled and the agreement terminates.

If the customer misses a payment, then the banks will start calling for the payment to understand if the customer needs assistance. The credit agreement allows the bank to use their own staff or external debt collectors, or even legal practitioners depending on the amount of the debt.

If the customer does not make the monthly repayments, banks are entitled to demand execution on the agreement, which is generally done by going to court and getting a court judgement against the customer. If the loan has been secured on an asset, like a car, then the bank can execute the judgement against the asset, and repossess it. Although if the asset sale does not settle the judgement, then the balance is still owing by the customer.

If you believe that the debt is incorrect, or that you have been treated unfairly, you can complain to the bank or to the National Financial Ombud.

But, ultimately the terms of the agreement will govern the process on both parties.

I hope this helps.