It is not uncommon to receive marketing messages advertising discounted debt consolidation.
In fact, only recently, Cape Debt Clinic received this very sms:
“Become debt free. Don’t struggle to pay your accounts, when you can now reduce your debt repayments by up to 60%. Consolidate now. Reply yes or stop to opt out.”
Thankfully, at Cape Debt Clinic we have the know-how to educate consumers about the realities of this type of advertising.
Have you received such an sms? Looking at the message critically, we can deduce that yes, you can become debt free and you need not struggle to pay your accounts.
The problem lies in the following two statements: “Consolidate Now”, and “Reduce your debt repayments by up to 60%”.
What does ‘Consolidate Now’ really mean?
Firstly, Consolidation does not apply to debt review. Consolidation is simply another loan which incorporates existing debt. Which is fine, if you are disciplined enough to stick to that loan until fully settled. Unfortunately for most, the inevitable need to dip into the credit card facility which is still available is too tempting and when the consolidation becomes too expensive to service, one forgets the reason for the consolidation in the first place – “I want to pay everything in just one amount”. Soon you are back to square one: paying off meals and groceries over 5 years in a consolidation is not always the best solution.
What about the offer to get a large discount off my debt repayments?
Whilst the phrase “consolidate now” is merely problematic, the phrase “Reduce your debt repayments by 60%” is downright misleading. Nowhere in the National Credit Act or in the Debt Review Guidelines (the stipulations for debt repayment according to South African law), is any such discount mentioned. To illustrate this point, here are two real-world examples of the legal guidelines for debt repayment in South Africa:
The guideline for repayment of a home loan is 80% of the repayment. Therefore thinking logically, a repayment of 40% of that home loan will result in you becoming horribly in arrears and debt review will simply delay the inevitable. By the time the banks commence termination, it will be too late to catch up the shortfall.
Although the guideline states 70% of the repayment for vehicles, there is more to it than that. Questions like: Is there a balloon payment applicable to the original agreement? How old is the vehicle? Is it a lease agreement? How much is outstanding? How long have you been in the credit agreement for? Restructuring vehicle payments is tricky and you may end up paying almost exactly what you are paying prior to debt review. The end result is that within 72 months, the vehicle must be fully settled. Only then may you exit the debt review.
From the above, you can see that in reality there is no such thing as a genuine “60% off your debt repayments.”
The truth is that Debt Counsellors must apply their minds to the affordability of the consumer and taking into account the creditor balances, work out a fair repayment that will finally be settled within a maximum period 60 months. This is the only way to settle your debt legally and safely, without the fear of unforeseen repercussions on your future financial health.
Your best option is to contact a debt counsellor directly if you are finding yourself in a situation where you can no longer afford your debt repayments. This excellent article published by the National Credit Regulator, provides some good information about this process.
Do not be caught off-guard by marketing messages advertising too-good-to-be-true reductions in debt repayments. These might sound good in the moment, but can have devastating long-term repercussions for the unsuspecting and uninformed consumer.
A self-assessment can be done with the guidance of a registered debt counsellor.