Ask Georgie: The debt trap

Published Nov 9, 2015

Share

Johannesburg - There’s no denying it – South Africans are a nation addicted to debt. An announcement in March by the South African Human Rights Commission put that into perspective: More than half of the country’s credit-active consumers are over-indebted.

“Of 19 million credit-active consumers in South Africa, 50 percent had impaired credit records – three months-plus in arrears,” Western Cape provincial manager Karam Singh told an SAHRC discussion on business, human rights and the effects of micro-lending on access to justice in Joburg.

“Fifteen percent are described as debt-stressed – one to two months in arrears.”

What is of concern is that debt-stressed consumers are turning to credit cards and high-interest micro loans to make ends meet, such as “pay day” loans, which only further entrenches their indebtedness.

“What we are seeing in South Africa and other parts of the world, even in the US and UK, is that these ‘micro’ loans are being used for consumption,” Singh added.

“In 2009, studies show that 40 percent of the money from micro finance was used to buy food and many borrowers were taking new loans to pay [o]d) ones,” he said.

In a shuddering economy, the fact that people are taking out loans to buy food is a terrifying thought. And it equates to borrowing from Peter to pay Paul, which, like a pyramid scheme, is bound to implode.

A stark reminder on Twitter from @ZAsmartconsumer reads: “If you only pay the minimum amount on your credit card it will take about 23 years to repay. Pay more to break out of the trap.” Credit is not only expensive, but it’s unwise.

At which point though does your financial situation become so dire that you need to take action?

Debt counsellor Nicola van der Merwe, a nominee for Small/Boutique Debt Counselling Firm at the Debt Review Awards, believes the sooner the better because debt can quickly get out of control.

“The best time to start this process is the minute you realise you will not be able to pay your monthly obligations in the future [ie the end of the month] because you will run into arrears.

“But you are also allowed to apply if have run into arrears by not paying your obligations for the past couple of months,” she says.

“Once a credit provider has started with legal action [by way of a summons] then that account will be excluded from debt review and then you will have to deal with this account either yourself or through an attorney. The point is: Don’t wait too long.

“Find a reputable registered debt counsellor in your area, with whom you can build a personal relationship. Each consumer’s circumstances are unique and you want your debt counsellor to know your ‘story’ and do a proper assessment based on your specific income and expenses.

“You also need your debt counsellor to be available in future should your circumstances change and you need extra help.”

If debt counselling is no longer an option, you could be declared insolvent. This process goes through the high court and its consequences are far more serious because you’ll have your belongings seized and it stays on your credit record for a long time.

“A sequestration application can only be brought to court by an attorney and/or advocate appearing in front of a judge in the high court on your behalf.

“You can bring an application for voluntary surrender of your estate yourself. This is only possible if you have assets to the value of 20 percent to 25 percent of your total debt plus fees.

“You will then be declared insolvent and the master of the high court will appoint a curator to take care of all your financial affairs. Assets will be sold.

“You will be insolvent for 10 years, but are allowed to approach the court sooner [again via an attorney/advocate] with an application for rehabilitation.”

And if you do nothing – avoid phone calls and pretend it’s not there?

“Creditors will proceed with legal action and issue a Section 129 notice with a summons. If you don’t defend the summons then a judgment will be granted and this will reflect on your credit record. A judgment stands in court for 30 years and at any point in this 30 years’ period, a creditor can proceed with a garnishee order or attachment of your assets.”

It’s sobering for anyone feeling even the slightest financial pressure. And a lesson that while credit might be relatively easy to come by, it’s very easy to dig yourself into a deep hole.

Georgina Crouth is a consumer watchdog with serious bite. Write to her at [email protected] or follow on Twitter @askgeorgie.

THE STAR

Related Topics: