Ithuseng Credit Solutions is the first Company in South Africa to be registered as an Alternative Dispute Resolution Agent with the National Credit Regulator. We also have registered Debt Counsellors. ICS is currently assisting thousands of consumers to resolve credit disputes and debt problems. In the process of assisting consumers the ICS has identified some of the mistakes consumers make when taking out and managing their debt. Based on this information, the CEO of the ICS, Magauta Mphahlele offers the following advice:
Conduct you own affordability
Many consumers rely on the affordability assessment done by the credit providers at the time that they apply for credit. During the application process it is only then that they respond to questions about their income and expenses and because they are under pressure to access the credit they usually understate their monthly expenses, leading them to be provided with more credit than they can afford.
- Borrow within your means: Only borrow what you can afford and try as much as possible to borrow for essential things like a house, a car, small business, education etc. Do a proper monthly income and expenses document to determine how much free money you have to pay for new debt. The free money (disposable income) that you have must be able to cover the monthly instalment as well as any additional running costs. For example if you buy a car you must have extra money for insurance, petrol and servicing. You must also consider price and interest rate increases.
- Understand how much interest you will pay: The amount of the loan and the time you take to repay the loan will have a big impact on how much you’ll spend over the life of the loan. Make sure you understand how interest is calculated and what the loan will cost you after all other fees and charges are included. Different types of loans attract different interest rates. For example personal and short term loans attract the highest interest rate as compared to a credit card or home loan.
- Be aware of all the fees: Lenders can charge you a range of fees including up-front initiation, and monthly service fees. Credit cards may charge annual fees and additional fees for certain transactions, so find out what costs you will be paying and factor this into your budget. If credit life insurance is included ensure that it is reasonable, that you have the policy document and you understand the claims conditions and procedure.
- Shop around: Credit costs money, so compare different interest rates from different lenders. In addition to ensuring that the interest rate you are charged is legal; also check the terms of the loan and the period over which you will pay it back.
- Read the small print: Don’t feel pressurised into signing a loan agreement without taking the time to understand the conditions. It’s also your right to ask an independent person or organisation like the ICS to explain the terms of the contract before you sign
Maintain a good credit profile
Once you have been granted credit it is important to maintain a good credit profile as this gives you the bargaining power to negotiate lower interest rates. In order to keep a clean credit record you MUST:
- Pay your monthly instalments on time with the correct amount. You may think missing a payment and paying double the next month is not a big deal, but doing so will negatively impact your credit record. A negative payment history cannot be easily removed and remains on your profile for five years
- If you cannot pay the contractual instalments for any reason don’t keep quiet or stop answering calls from your creditor. Instead call them to make new payment arrangements
- Check your credit report for free once a year to detect fraud, unauthorised enquiries or information that has not been updated.
- Dispute incorrect information directly with the credit bureau
- Settle your debt if you want judgments or adverse listings to be removed
You have the following rights regarding your credit information:
- You have the right to receive a free credit report once a year from any of the credit bureaus;
- You have the right to lodge a dispute directly with the credit bureau if there is any information about you that you do not agree with;
- If the information is correct it can only be removed if you settle the debt in full or if the time that it is allowed to stay on your report expire;
- If you settle the debt, the information must be removed within seven days of the credit bureau receiving proof of settlement;
- You can call the Credit Ombudsman on 0861 662 837 for more information on how credit bureaus work and if your credit bureau dispute has not been resolved within 20 business days.
Know the cost of Credit
When you apply for credit you will be charged the following:
- Initiation fee. This is the fee you pay for the administration costs of considering your application. It is a once off fee that you can pay separately or include in the amount you are borrowing;
- Interest for the opportunity of your paying back the money over a long period. The interest must not exceed the maximum set by the National Credit Act and each type of credit agreement attracts a different interest rate.;
- Monthly service fee to cover the cost of the credit provider servicing your credit agreement like giving monthly statements and answering queries regarding your account;
- Credit life insurance which is optional to cover you for illness, death and retrenchment. You don’t have to take the cover offered by your credit provider and make sure you understand the policy and how to claim.
- Depending on what you are buying there would be other extra charges like licensing, property transfer, delivery etc. Make sure you know what these charges are;
**All the above must be explained to you before you sign the credit agreement.**
Cover yourself for Retrenchment, Death or illness
If you buy an item on credit or take out a loan, you will still be liable to pay for that item, even if it is damaged, lost or stolen before the term of the loan is up. If it’s expensive, this means you will be paying off something you don’t actually have. It is also important to take out credit life insurance in case of retrenchment, death or disability. Make sure you are not charged exorbitant amounts for this type of insurance. For any insurance taken make sure you are provided with the policy document that outlines the terms and conditions so that you avoid your claim being declined. If your claim is declined unfairly you can lodge a dispute with the relevant Insurance Ombudsman. The details of the relevant Ombudsman will be on the policy document.
Make lifestyle changes or get professional assistance if you are struggling to pay your debts
If you are struggling with paying your debts Mphahlele recommends first reviewing your budget to see if you can cut down on some unnecessary expenses and make some lifestyle changes. This can involve downgrading your TV subscription, cell phone contract, reducing your entertainment and changing where you shop. If budget cuts do not work the following is recommended:
- Prepare an income and expenditure statement and contact your credit provider directly to ask for reduced instalments if your problem is temporary;
- If your financial problems are serious and long term you can approach a registered Debt Counsellor for assistance.
- A Debt Counselor can assist by negotiating reduced installments based on the money you have available after your essential living expenses are deducted from your monthly income
- Debt Counseling is a long term commitment to pay off your debts and during that time you will be listed at the credit bureau and are not allowed to access credit;
- You can only get out of debt counseling once you have been issued with a clearance certificate or you approach a court to be declared not over indebted. As a result make sure you understand its implications on your finances, professional and personal life;
- Debt Counselors are allowed to charge fees according to the NCR guidelines and they only distribute money to your creditors after the second month. The first two months pays for the debt counseling and legal fees
If for personal or professional reasons you are not able to go under debt counselling all credit providers have debt restructuring solutions that they offer their clients. You can access these on your own or through your debt counsellor in terms of section 129 of the National Credit Act.
Understand what legal steps will be taken if you can’t pay your debts
Most consumers do not understand the debt enforcement process and end up paying more than is necessary in legal fees and interest. If you cannot pay your debts seek assistance before the matter is handed over to the legal process. Below are the steps the credit provider will follow to recover their debts:
- The credit provider will first call you and ask you to bring your payments up to date;
- If you don’t respond or keep to your promise to bring the account up to date, they will send out a section 129 notice that credit providers are obliged to issue to you once you are in default for at least 20 business days.
- Once you have received a section 129 letter you have the option to refer that specific credit agreement to a debt counsellor, an Alternative Dispute Resolution Agent, Consumer Court or Ombud with jurisdiction. The intention is that the credit provider and you resolve any dispute related to the agreement or agree on a plan to bring the arrears up to date.
- If 10 business days elapse without you responding to the section 129 notice or if negotiations are not successful, the credit provider is at liberty to proceed to issue a Summons; and
- After summonses are served the court will issue a judgment against you if you defend the matter or a default judgment if you are not present in court;
- Once a judgment is issued the credit provider also obtains the right to repossess and sell any asset “ or Garnishee” your salary
Always make sure you contact details, physical and postal address are updated so that you receive all the relevant legal notices. Don’t wait for the credit provider to proceed with legal steps. Contact them to make arrangements of contact the ICS for assistance.