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Thread: When should you resort to getting debt counselling?

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  1. #1
    Site Caretaker Dave A's Avatar
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    When should you resort to getting debt counselling?

    Wesbank suggests that debt counselling is not always the best solution.

    I expected a slanted report, and right at the end I was not disappointed.
    It was also important for consumers receiving a monthly car allowance to continue to use the full allowance towards paying off their vehicle instalment.
    Other creditors that are having to take a knock while the wheels finance is getting its full slice might not agree

    Unsurprisingly creditors don't like debtors paying off their debts at a slower rate than originally anticipated. Of course creditors also have to balance the rate at which they're going to get paid against the prospects of getting paid at all. Sometimes getting paid slowly is the best of a bad set of options on offer.

    But the article did get me wondering - when should a consumer resort to the debt counselling option? After all, it's not exactly saving the consumer money - it's actually adding a cost.

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    Diamond Member tec0's Avatar
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    Well the truth is, it is exceptionally difficult to get out of debt. The reason is partly due to over spending and partly because of poor salaries. In the UK you can buy a good second hand car and pay it off in less than six months and the actual insurance will cost you more than your instalment.

    In South Africa, cars are at a premium price and it also an unavoidable debt even in the second hand market cars is just too expensive. So, now if you pay less on your car you will end-up paying more for it over a longer time frame so you don’t win and then there is inflation and basic running cost to consider. Thus a car is just basically a dead loss as an investment.

    So let us look at consumers buying power and their income. Once you realise that your buying power is basically zero for a person that earns between R1500 and R3000 however that being said a person earning between R5000 to R8000 cannot afford a place to live and a car thus living cost is still too high.

    So the basic spender earns between R10000 and R15000 per month and they are able to afford the basics “car, place to live, food to eat and medical aid. And then they will still have debt in the form of accounts thus these people are the bank’s target group.

    Now in layman’s terms the more money you get the bigger the loan and this is the real problem because of this banks got so weak that they cannot help the little person with a R10000 loan because the person that is earning more basically took the available funds against possible profit via repayment.

    Now you have mass job insecurity and mines closing everyday thus these monies are not returned to the bank and that starts the problem. With the bank needing to make their money back they will not allow for microloans like those back in 1980 to 1990 “small amounts to fix your car that kind of thing” lower income group do not qualify for a loan but they pay higher bank cost because of the bigger loans that was unpaid.

    If you think this is confusing it gets better. Because banks are more of connivance then a service most people will pay an amount on banking cost. This amount is taxable... the things they buy is taxable the things that gets sold is taxable so for every 1 item the government gets paid about 3 times and it is the consumer paying this tax and then don’t forget the hidden cost.

    So we can agree that the system is designed to milk the consumer dry as quickly as possible. Now the consumer must get a credit card just to do shopping and because they earnings is too low to survive. Now if the earnings are known to be that low why do banks give credit or loans to start with? It is a fact that the person asking for the loan will not be able to repay it due to the system to start with... but It is interesting to see how many times a day this process repeats itself.
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    Platinum Member Marq's Avatar
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    I think that, if the debt counselling option came off a genuine helping hand scenario then the sooner counselling and sorting the problem out come in, the better. Unfortunately the bit I have seen when it comes to these so called counselors, leaves the situation far from the desired.

    Naturally the person in debt is going to stretch this out as long as possible. Denial of a problem and the ever hopeful scenario that the situation will turn around is always an option. End result is often a struggle and trouble one.

    The counselor option appears to be far to exorbitant and places an even bigger burden on the debtor. Added to this the obvious reluctance of big companies and banks to come to the party (this wesbank story tells all) and we have a situation where there is only one loser.

    But to answer your question Dave - I do not think there is an exact answer. Maybe three months into a non or part payment situation as a guideline?

    Go Cash - No credit - wait and build up reserves for the things you want and need. Dont be a victim or put yourself into the situation where you can become one.
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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Marq View Post
    Dont be a victim or put yourself into the situation where you can become one.
    Easier said than done for the typical small business owner, I think. A client lets you down or the economy catches a wobble and the walls can start closing in pretty fast.

    I was wondering if the dividing line really came down to self-disipline? A case of if you recognise you don't have the willpower to manage your budget, best you get help and the quicker the better. But the problem there is if you don't have that self-discipline, are you going to be able to recognise that and admit it to yourself?

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    Diamond Member wynn's Avatar
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    I have always maintained that the average 'South African Okey' is one paycheck away from disaster.
    Interest rates on Bonds whip up at the smell of a rates increase.
    Add to this top preforming State Monopolies such as ESKOM deciding to increase electricity by 45% a year for three years taking the average houshold consumption through the roof.
    Efficient Municipalities increase rates by 30%
    Money grubbing effenB charge R180.oo for bouncing a debit order for the lack of R20.oo easily transferable funds.
    This 'Okey is going to get into the 'Kak' pretty darn quick.

    Lets all go live in a managed 'squatter camp' steal electricity and water, don't pay rates and start our own 'stokvel' to replace the banks, then we can tell the powers to stick it.
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    Diamond Member tec0's Avatar
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    Well as a well educated person trough the medium of trial and error I would recommend to always plan for the future. I don’t drive new cars and I don’t have expensive clothing. The truth is with proper planning you CAN structure your life around the basics and save-up for the luxuries.

    I have done this as a business owner and I always calculated growth and potential buying power. Then my contracts were always structured around a heavy deposit 40% so if something bad happened I could recover.

    I do the same thing with my personal life. I make sure that when I buy something that have 100% of the funds available but then I will structure my loan with a 40% deposit and then do double payments with the money I have left and my income thus I get good credit. More importantly I can clear the loan in a single payment “if your loan is connected to the bank” and it will not cripple me.

    Overspending can be prevented but when it comes to a house then things get difficult. Fact is banks put people in a default disadvantage and it is that default that is the real problems because the bank makes 200% profit on your loan. And that just BS
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    Site Caretaker Dave A's Avatar
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    I'm certainly not suggesting people would be forced to pay off their bond quicker. I'm suggesting the work-around would likely take the form of forced refinancing.

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    Hi all
    Debt counselling is sometimes not worth the effort.
    Reason being that the National Credit Act allows for different credit agreements to be extended for certain periods in order to lower that payments.

    Therefore there will always be a absolute minimum payment required for any consumer who wishes to apply for Debt review. If that minimum payment required is still less than what the client can afford the process will not help that client but rather put more strain on him/her than there already is.

    Hope this helps.

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    I would agree with helpwithdebt, just maybe a technicallity though, debt consolidation is maybe not worth the effort but counselling is hopefully to counsel the person / entity to be managing the debts of the future at a level they can manage to recover from past financial transgressions / mistakes.

    Some places are worse off after consolidation because although there is a financial saving, the availbility to create debt has been increased and if it is used, you sit with a bigger problem later on.

    As such a good debt counsellor would identify the possible problems and then give specialised advice.

    Seems like "debt" has snowballed into such a vast category that everyones advice is correct for a specific situation, and this forum seems to have more financially responsible persons than not.

    What I think does need addressing is who gets credit listed (Transuinon or Experian or there is another one). I see the people who get a salary each month without any business expenses get listed quite quickly, but those running their own business with a profit based income are listed very late and CCs and PTY LTD are listed even slower. I guess the creditors still believe a company will eventually pay anyway but an individual my not.

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    From my reading of the NCA, a standard agreement in terms of which the purchase price for a business, is payable by way of two or more instalments and which makes provision for interest on the outstanding balance would require the Seller to register as a credit provider (if the outstanding debt is more than R500 000). It seems ridiculous for someone to have to register as a credit provider for just one agreement - or have I missed something?

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