Get your debt rescue maths right before you pick up the phone
Going into debt rescue is a huge life change that often restricts a consumer’s financial options for a long time. This means it’s vital to take all possible money saving steps, before making that all important decision...
Debt rescue is a crucial financial safety net for all South African consumers - even those who never use it. The mechanism was created by the National Credit Regulator, via the stipulations of the National Credit Act, to allow consumers who can no longer manage their monthly loan re-payments to restructure their financial lives, with the help of a specialist service provider.
‘It’s a very useful financial tool,’ says Tlalane Ntuli, co-founder and Chief Operating Officer at Credit Life Insurance brand, Yalu. ‘Everyone loses when someone can’t pay their debts and just walks away. The consumer ends up blacklisted, while the credit provider won’t get their money back. It’s in both parties’ interests to work together to develop an alternative plan, and debt rescue allows this to happen.’
Once a consumer enters debt rescue, they no longer qualify for any kind of credit, and this status lasts until all their debts have been fully settled. In addition, the debt rescue counsellor takes over all interactions with financial service providers on their behalf. This allows the counsellor to negotiate with many providers with respect to the time periods and interest rates applied to different loans. While the consumer is largely powerless through the process, they enjoy the significant benefit of being presented with a single monthly re-payment structure that will eventually get them out of debt.
‘When you are in serious financial trouble debt rescue is the sensible way out,’ explains Ntuli. ‘However, being unable to represent yourself financially means you can’t take out a loan to buy a car or a house, or even to pay for university with a student loan. If the debt rescue period is long, as it often is, this can have a massive impact on someone’s life, and that of their family. Once you’ve started the process there is no going back, so debt rescue really should be the last resort – something you do when you’ve exhausted all other options, including carefully re-examining the structure of your financial life.’
Ntuli highlights the fact that meaningful debt action often starts with optimising the costs applied to different financial products. When it comes to Credit Life Insurance, for example, many consumers are simply unaware that they could be using a different service provider that charges less.
‘This type of saving is important,’ she says. ‘Often it’s the difference between being able to meet your monthly obligations, or not. And yet a lot of South Africans aren’t even aware that they have a Credit Life Insurance policy, let alone how much it’s costing them every month.’
Credit Life Insurance covers borrowers’ debt in the case of retrenchment, disability or death. This type of insurance is sometimes mandatory and is generally offered by the same financial institution offering the loan. The premiums charged for such policies can vary dramatically, and as a result a lot of consumers find themselves unwittingly paying the maximum possible premium every month - creating room for savings if they were to choose a different provider.
‘Once people find out that they can choose their own Credit Life Insurance provider and save money, they’re generally quick to take action,’ says Ntuli. ‘There’s no question about it, anyone considering debt rescue should first explore their Credit Life Insurance premium structure and see if they can make changes that will ease their monthly burden.’
Yalu’s website allows any consumer to quickly get an idea of how much they can save on their Credit Life Insurance Policy if they switch to Yalu. Users simply enter a few personal details and are then presented with their potential credit life insurance savings. ‘The process is particularly quick and easy with Yalu, but borrowers should also be aware that they can communicate directly with all service providers about the terms of their loans,’ concludes Ntuli. ‘A few phone calls to explain your situation can easily bring some relief. You owe it to yourself and your family to do everything you can before entering debt rescue and restricting your financial future.’