The case of a single mother whose debt has ballooned rather than decreased while in debt counselling highlights many of the problems with debt counselling.
Carol is a nurse in her early 50s. She has two dependent children and an ex-husband who doesn’t pay maintenance. About 11 years ago, Carol bought a house and obtained a bond for R380 000. About five years later, she started having financial difficulties: her mother got terminally ill and it fell to Carol to take care of her, which meant she took a knock in her earnings.
She then got sick, yet was able to take an additional bond on her property which had appreciated in value. Consequently, her home loan debt more than doubled to R850 000. The extra money was used to fund living expenses for a year and pay off medical bills and other debts.
By the time she went into debt counselling, almost five years ago, she had more than R300 000 in unsecured debt – 12 credit cards and two personal loans – plus her home loan and a car loan.
On signing her up, Carol’s debt counsellor ought to have done a reckless lending assessment. But he did not do one and Carol didn’t know he had to. Had he done so, some of her debt would have been found to be reckless. Had the bank that gave her the second home loan done a proper affordability assessment, it’s unlikely that she would have qualified for that bond, because she needed to borrow money to fund living expenses, which indicates that she was already over-indebted.