By Clayton Barnes
Every month 70 000 South Africans join more than a million others facing legal action because they are in arrears.
This comes despite claims from banks and other credit providers that they have radically reduced the number of customers taken to court for non-payment.
And economists warn that the credit crunch is only the tip of the iceberg as more interest rate and petrol price hikes loom.
Paul Beadle, the managing director of the financial website Justmoney.co.za, said there had been a massive increase in the number of people facing legal action for unpaid debt since the National Credit Act came into effect on June 1 last year.
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Before the act came into effect it was very easy to get credit and people often acquired more credit than they could afford. Now, though, it is much more difficult for people to get credit as the act prohibits creditors from lending money to individuals who are over-indebted.
Beadle said it was difficult to estimate the exact number of South Africans facing legal action for being in arrears with debt, but the figure was well over a million.
"We have established that 70 000 people join that group every month."
Beadle added that consumers were waiting too long to tackle their debt problems and should seek the help of a debt counsellor as soon as they realised they could not meet their monthly repayments.
The number of people applying for debt counselling through their website was increasing daily - often as a result of being turned down for a new credit card or a personal loan.
"Consumers are trying to tackle their payment problems by taking out even more debt, which is just making matters worse," he said. "People shouldn't put their heads in the sand about their debts; ignoring the problem could lead to bankruptcy and being blacklisted for years."
Debt Busters, one of South Africa's biggest debt counselling companies, deals with about 100 new clients a month.
Luke Hirst, the managing director, said debt counselling was the only solution for many people, but they should be prepared to change the way they managed their debts and money. Debt review was a last chance to avoid administration or sequestration of accounts. It was essential for people to stick to their revised debt repayment programmes, he said.
"If a client fails to maintain their revised debt plan, or they go out and get more credit and add to their debts, they will lose their debt review status and the lenders to whom they owe money can then proceed with legal recourse to reclaim all outstanding debt."
A six-step process on the Justmoney website explains exactly how consumers can go about identifying a debt counsellor and what they charge. The website also offers a list of debt counselling companies registered with the National Credit Regulator.
Richard Pembroke, a director at Debt Busters, said that while creditors were prohibited from granting credit to people on debt review, people still managed to acquire large loans.
This over-indebtedness could either result in legal action or they could have their debt review status cancelled altogether. People should see debt counselling as a "last chance for debt rehabilitation".
Most South Africans were under the impression they would automatically be placed on the debt review programme if they could no longer afford to pay their debts.
"People shouldn't just skip payments and wait for lawyers' letters, they should go to see a registered debt counsellor." The counsellor will then make an analysis of the person's debt, a new payment plan will be restructured and the proposed plan taken to the individual's creditors for acceptance. "The creditors can either accept or reject the proposal. However, if they do reject the proposal, they will have to contest the debt counsellor's restructured payment plan in court."
Pembroke said all debts were frozen while the debt counsellor restructured a new payment plan. Once the creditor accepted the debt counsellor's payment plan, the indebted individual would go on debt review.
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