Recent figures released by StatsSA suggest that South African banks are becoming more lenient when it comes to chasing up loan defaulters who are struggling to keep up with their repayments.

From December to February the number of summonses for debts fell 11.3 percent while the number of judgements fell 10.3 percent. Of the R560.7-million worth of civil judgements, the largest portion can be attributed to judgements involving money loaned and owed to promissory notes and other debt acknowledgements which include money owed through credit card debt.

Debtbusters MD Luke Hirst said he was very pleased with the news that South African banks seemed to be stepping off.

“This is great news for South Africans under pressure. It’s a sign that local banks have bought into the debt counselling process and have come to realise that there is more to gain from negotiating with the consumer than heading straight to court.”

No other option

He said that it is important to remember that people who apply for debt counselling aren’t doing so because they want to ease the pressure of paying off their loans, but rather because they have no other option.

“Many people who apply for debt counselling are just a few steps away from full on administration — a position in which neither the client nor the banks will benefit. By utilising debt counselling, the client is acknowledging that they intend to pay off the money that they owe and this alone should be enough to encourage banks to broker relationships with debt counsellors.”

With one more interest rate hike expected this year, Hirst said it was important for South Africans to review their finances immediately if they thought they may be under any sort of financial pressure.

“If you are struggling to make ends meet now, another rate hike could put you into very deep trouble. Consult a registered debt counsellor if you have any apprehensions about your current financial situation.”

Debt review — an example

How can the debt review process help a consumer who cannot afford all his monthly debt repayments? Here is an example:

The consumer, Mr AN Other, is single and is employed on a full time basis with a net salary of R6500 (five percent annual increase). He does not have a lavish lifestyle and his monthly expenses, excluding debt, average around R5000. Mr Other is left with R1800 for servicing his debt.

Mr Other has two personal loans, two credit cards and three store cards with a total outstanding balance of R58 533 and an expected monthly debt instalment of R3952. This means that after expected monthly debt instalments Mr Other has a negative balance of R2152 and is therefore over-indebted.

Due to his over-indebtedness, Mr Other can apply to be placed under debt review by a registered debt counsellor. The debt counsellor will advise the credit bureaus and Mr Other’s credit providers and will restructure the debts so that Mr Other can afford to pay them, using the available R1800.

Using the R1800, Mr Other can be out of debt by January 2012. (This example does not take into account debt counsellor fees, which vary. A debt counsellor must advise the client of the fees before the client applies for the debt review.)

The advantages of debt review

Clients avoid debt administration and sequestration and therefore incurs fewer costs.

After the debt review is complete and the client has paid the debts, the credit bureaus clear the client’s credit record. With administration, the black mark stays on your record for a number of years afterwards.