Face2Face Challenge 2018

Our contenders come face-2-face in our weekly challenge on Facebook (DebtFreeLifeSA). These are the scenarios we posed to them. Now you can test your financial savvy and see how your answers match up to ours!

Q
You have 5 creditors and have been struggling to meet the monthly payments for some time now. You don’t foresee that the situation will improve soon. You are considering debt review, but a friend suggests a consolidation loan. What would you do?

A
Consolidation of debt is a viable option. The following should be taken into account:

• Any reputable company or bank will do an affordability assessment. If they find you cannot afford to repay the consolidated amount you will not qualify for the loan.
• Consumers should be aware of the contractual implications of the consolidation loan. You may find the interest rate and or repayment amount are as high or higher as the combined current instalments and interest rates.
• In contrast, under debt review you also pay only one amount but the purpose of debt review is to reduce the monthly instalment to an amount that is affordable to you.
• Your debt counsellor will also in most cases be able to negotiate a reduced interest rate.

Q
You have 5 creditors and have been struggling to meet the monthly payments for some time now. You don’t foresee the situation will improve soon. You are considering debt review but a friend suggested voluntary sequestration. What would you do?

A
Voluntary sequestration can be an option because after voluntary sequestration you have no debt left and after the rehabilitation period you can incur new debt. However, the following should be taken into account:

• If you are sequestrated, you lose all your assets. This may particularly be important if you own a house or car.
• Voluntary sequestration is very expensive and not affordable for a consumer that is already in financial difficulty. A successful application may cost more than R40 000.
• A voluntary sequestration application will not be granted if you have no assets. You have to prove to the judge that creditors will receive a certain percentage of their debt from the proceeds of the sequestration.

Q
Assume you have decided to get professional help to tackle the debt in your life. Would you choose a BIG debt counselling company or a SMALL company? Please motivate your answer

A
In our opinion, the size of the company is often a matter of personal preference.

Some points to ponder are:

• Small companies may offer a more personal relationship with your debt counsellor. A bigger company is often less ‘personal’ and if you prefer to be known only by your ID number, the bigger company may be for you. It may be that you never even meet or communicate with your debt counsellor personally.
• Negotiation with creditors. There is no reason why a bigger company can negotiate better deals with creditors. All debt counsellors are governed by the same Act and the same rules apply when creditors consider proposals.
• If you want to talk directly to your debt counsellor while under debt review. During the period you are under debt counselling, unforeseen things that are not in your control may happen. In these situations, a debt counsellor from a small company may be more accessible and may give you their personal contact details.

Q
You have been under debt review for 12 months, but your account balances are coming down very slowly even though you are making regular payments. Do you consider exiting the debt review process?

A
You should NOT exit debt review. The account balances will initially come down frustratingly slowly because of the following:

• If you are under debt review your first 2 payments are used to pay the negotiation fees to your debt counsellor and the legal fees. So, after 2 months interest has been added to the account whilst no payments have been received. Only from the third payment distribution to creditors are made.
• If your debt counsellor has been successful to negotiate reduced interest rates, creditors only implement the reduced rates once the court order has been granted. This may only happen as long as 3-6 months after your application.
• Initially a bigger part of your instalment is used to pay interest. As the outstanding balance decreases, a bigger part of the instalment is used for capital reduction.

Q
You have been under debt review for 2 years and have received at least 2 salary increases. You can now afford to increase your debt review repayment. Should you do this?

A
Most people want to end Debt Review soonest, so DO increase your payment or make additional payments if possible. Just be careful not to over-extend yourself.

Under debt review, creditors expect full payment monthly. If something unforeseen happens (eg retrenchment) you may not be able to afford the debt review payment. To overcome this, build up an emergency fund of 3 months’ debt review payments. You then have time to find new employment or overcome the unexpected financial constraint. And don’t touch that money unless it’s a real emergency!

Q
Assume you are married in community of property (COP). All the debt is on your name and your spouse does not have any debt. Can you apply for debt review without your spouse?

 A
No. If married COP, both of you must go under debt review.