How Two Normal People Overcame Debt
Over-indebtedness can be isolating and embarrassing to talk about. But it’s encouraging to hear stories of people who’ve overcome debt.
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June 8th, 2017 by Melissa Wentzel
Debt does not discriminate. Everyone is exposed to ‘credit’ at some point in their working lives. If you don’t take any, it’s not good for your credit score. Take too much, and you can become over-indebted.
If you find yourself in the latter group, it’s okay, many people are.
Other people have been there and come out okay on the other side.
In September 2016, consumer debt in South Africa reached a combined total of R1.6 trillion. In May this year, Nomsa Motshegare, chief executive of the National Credit Regulator (NCR), confirmed that the [consumer] indebtedness of our country continues to be a problem.
Motshegare reports that unsecured lending is still being granted to 57% of consumers who earn less than R15 000 a month. Single mothers accounted for 50% of mortgages granted in this bracket.
Mrs X*, a 42-year-old single mother from Nelspruit, was struggling to keep up with her debt repayments. She approached National Debt Advisors (NDA), a debt counselling firm, for help.
Mrs X’s net income was R11, 219 and only R6 787 was available to service her debts monthly, but she owed R10 845 per month. She was over-indebted, as her expenses had exceeded her income. Raising her young son alone, she worried she would lose her home and car.
An NDA debt counsellor looked at her current household budget to determine the figure available to honour her debt obligations. She owed money on her home loan, a personal loan account, two credit cards, vehicle finance, a bank loan, and a retail account. The NDA proposed she undergo debt review and they submitted lower monthly instalments and interest rates to court for approval.
Each of her creditors accepted a lower instalment and drastically reduced interest rates (some as low as 1.2%). The only creditor that refused to budge on the interest rate was the retail account which remained at 22% interest.
The new monthly figure came to R6 061, a saving of R4784. During the debt review process, Mrs X receives legal protection from the time of application, pays fixed monthly instalments, and no longer receives calls from creditors and no blacklisting can be lodged at the credit bureaus.
Mr C* found himself over-indebted when his wife got retrenched shortly after they were married. As the sole breadwinner with a R16 000 net income and a baby on the way, he fielded calls on a monthly basis from creditors following up on missed payments. Prior to his wife’s job loss, his disposable income was just over R2000. Her debt obligations exceeded R5 000.
The bank was trying to repossess his car which he needed for his job in sales. He considered undergoing debt review but knew he wouldn’t be able to apply for any credit until all his debt was paid in full. Or at least until the courts were satisfied with how much he had paid off. He needed to move his expanding family into a bigger home in the near future and would have to apply for a bond.
Instead, Mr C decided to drastically cut costs. He discontinued his DStv account and his armed response service, lapsed his household insurance, and downgraded their motor vehicle insurance to cover absolute loss only. He and his wife committed to discontinue using any credit facilities, including retail accounts and credit cards. They answered calls from creditors and made payment arrangements they knew they could honour. There would always be one or two payments per month that would be missed, and when they were still short, they each borrowed from their mothers (and always paid them back).
Mr C also approached his employer to restructure his remuneration package to 100% commission. This would mean if he didn’t bring in any business, he wouldn’t get paid – a big risk – but it would be possible to exceed his R16 000 salary.
The first month on the restructured salary, his income tripled. He paid as much as possible into their debts and within a year, they completely cleared their retail accounts and credit cards. They were declined on a bond application, and six months later, he was declined again. But after disputing the bank’s second decision and investigating their respective credit histories, the bank approved their loan.
Mr C has paid off both his and his wife’s cars and is currently able to provide his family with a comfortable lifestyle.
*Names have been changed.
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