COVID-19 and Reduced Income: Managing Debt

COVID-19 and the safety measures taken to flatten the curve has had a radical impact on the income of many South Africans. This also brings uncertainty as to when – if at all – their income will return to normal. Here at Cape Debt Clinic, we are working flat-out to support consumers who have questions regarding their inability to repay debt.  If you are considering Debt Review, read on.

The reality of “payment holidays”

Despite promises of support through “payment holidays”, the reality is that after the payment holiday is over, you will need to catch up. 

Dealing with reduced income due to COVID-19

If your income has been adversely affected by circumstances relating to COVID-19, please check your agreements to see if you are covered by credit life insurance.  Claim against this credit life insurance. If you are making use of payment holiday concessions, ask yourself the following:

  • Do you think you can catch up within a reasonable time when your income returns to normal? 
  • What if your income does not return to normal after the concession is granted by the bank?

When things are not going as you planned, you may be struggling to feed your family and keep up with reasonable living expenses while at the same time paying your credit agreements. If you are unsure, contact us for an assessment.

South Africa’s nationwide lockdown due to COVID-19, along with the global safety measures being put into place, is having an effect on most people’s income. We help you make sense of your options on dealing with debt at this time.

What help can be expected from Cape Debt Clinic regarding reduced income and debt repayments during this time?

At Cape Debt Clinic we always apply the norms and standards as laid down in the National Credit Act. The method we apply is reliable and we have assisted many people over the years.

Simply said, we discuss your living expenses first: what do you need to keep your head above water?  We will make a list of the things that you simply need cash for such as:  Rent / Property Rates, Banking Fees, Personal needs, Groceries, Insurance, Cell Phone, Internet connection, Security and other personal costs.

Note that Gym Contracts, Telkom and Cell phone contracts form part of your personal living expenses, as these are not credit agreements.  If they fall into arrears, they are then categorised as Incidental Credit and repayments can become very expensive should they be handed over to Debt Collectors or Legal entities for collection or repayment arrangements. 

If you are having trouble with your payments on these contracts, it would be better for us to address this problem early on and try to catch up with arrears in order to prevent Debt Collection procedures.  It is also more beneficial to keep up with these agreements because arrears can adversely affect your credit score and future cell phone contracts or upgrades may be a challenge due to the record of non-payment which stays on your credit record for a period of 2 years.  So, check your credit report from time to time, to ensure that there are no “surprises” there!

How we help you handle your creditors and debt repayments

You will note that creditors are not included in the living expenses section.  This is because creditors are treated separately.  That is our job.  If we take your total living expenses and subtract that from your income (combined, if married), there should be enough left over to pay your contractual instalments with creditors.

When to consider Debt Review

If there is not enough to pay your contractual instalments with creditors, you may be over-indebted.  We can revise the budget if you are slightly short, but if the deficit is too large, you may want to consider debt review.

While you manage your budget, we restructure your debt with the available funds left after living expenses are subtracted from the income.  Our task is to negotiate with creditors on your behalf.

What can you expect from debt counselling?

  • During the counselling consultation, we complete the Form 16 which needs your signature and some supporting documentation;
  • CDC communicates with your creditors on your behalf;
  • Once the process starts, creditors communicate with us, not you;
  • If you are still being harassed by call centres, you notify us and we deal with them;
  • We calculate a fair repayment amount to each of your creditors. The negotiation includes rate reductions, extension of terms and reduced repayments.

While we have many successful clients and happy consumers who have become rehabilitated over the years, we realise that you may have hesitation to apply.  Perhaps you have heard some horror stories from friends and colleagues who have had bad experiences from Call Centre operators who are not necessarily qualified Registered Debt Counsellors. 

Here follow some facts that you can expect from the Cape Debt Clinic team:

  • All assessments are done personally by your Registered Debt Counsellor, Karin Augustyn NCRDC1647;
  • The period you are under debt review depends largely on your repayments.  At the beginning of debt review, things may look bleak, but inevitably your finances will improve, maybe after 1 year or even two.  You may increase your payment at any time, or once off increased payments.  Please always talk to me when you want to increase or make one-off payments, so that we can examine the court order and consider which creditors – all or a single one – may be almost settled; 
  • Never pay less than your rehab amount as this will result in termination of the debt review, and in such instances our services are automatically suspended, leaving you possibly in a worse position;
  • Once your first creditor is paid off, we will request a paid-up letter from the creditor, keep it on file and reschedule that instalment over the rest of the creditors.  This is the key to a successful debt review.  At first it seems as though accounts are being settled slowly. However, once your accounts start being settled, the rest of the creditors start receiving increased payments, because your rehabilitation payment remains the same throughout the debt review.  It’s like a waterfall: first a trickle, then a stream, then the rushing of a torrent and soon your debt will be settled.
  • Many people think that they will have to be under debt review for five years or more.This is a Guideline in the Regulations contained in the NCA of 2007. We may not exceed a repayment negotiation longer than 5 years.  In our experience, most of our clients finish their debt review long before the 5 year maximum term;
  • What happens once all the debt is settled?  We collate all the paid-up letters from creditors and once they are all in, we issue a Clearance Certificate and remove records from the National Credit Regulator’s Debthelp system and instruct the Credit Bureaux to update their records.  Then you are clear, rehabilitated, debt-free and able to apply for credit again should you wish to do so.