R1.7bn gift for creditors

Monday, December 14, 2009

Pretoria - Debt counselors have helped retailers and banks recoup just over R1.7bn, saving them money they would need to spend on debt collectors.

"What debt counsellors have been able to achieve are massive gifts to creditors - retailers and banks - in terms of repayments made by consumers that amount to just over R1.7bn this year and have saved creditors millions that they don't have to spend using debt collectors and lawyers to chase money," said Consumer Assist's chief executive officer Andre Snyman.

Debt counseling, according to Consumer Assist, has injected significant money back to creditors and the economy.

In May 2008, R8.96 million was paid, while in August this year payments from consumers under debt counselling had leapt to R97 million and in September it grew another R10 million a month to R107.7million. In October, those receiving debt counselling paid R125.84 million back to creditors.

Snyman said there were still challenges with some creditors as well as consumers who are trying to manipulate the system.

He said that one of the top four banks in the country was notorious for harassing consumers with calls, letters from lawyers and threats even after they have been under debt review.

Additionally, there were consumers who last year applied for debt review before Christmas in efforts to try and get a 60 days grace from creditors while they continued spending.

He said in 2009 there were some consumers who were planning on going under debt review after Christmas because they wanted to see if they could get loans to spend more at Christmas.

"Either way those consumers are digging a very deep debt grave for themselves. Those that default don't seem to realise that once they have done this, they have destroyed all their options for redeeming their credit record and stand to lose assets such as their car or home," he said.

Stores were reporting that the highest level of credit applications were from those who earned R5 000 to R7 000 monthly.

Snyman said this was indicative of a new era of over indebtedness in 2010.

"In 2009, most of those in debt earned R8 000 to R15 000 a month, our research and that from the NCR shows that people in those categories are most at risk of job loss and very high debt stress.

"But if the scale below them is now incurring significant debt it could mean they are next in line to hit the credit skids," he said.

Consumer Assist said that stores had noted that customers were holding onto their wallets and not spending.