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The Truth About Debt Counselling

Learn to manage your debt.

Eamonn Ryan

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Thanks to the recent economic upheaval, people are more familiar with debt than they would like to be. Unfortunately, they are also applying for debt counselling for all the wrong reasons – thinking they can avoid their debts when they really need to confront them with lifestyle changes.

Debt counselling is not a ‘hiding place’

The debt counselling system is becoming bogged down by the weight of a huge number of applications, currently more than 7 000 a month, many of which are from people who should not be applying for debt counselling in the first place. According to Stats SA, the number of people who applied for debt counselling rocketed from 36 246 in November 2008 to 132 291 by November 2009.

Who should use debt counselling?

Of the flood of applications, a percentage is from people desperate for ways to escape repaying their debts and therefore opting to hide behind debt counselling. According to Stats SA, applicants are typically people who on average earn about R10 000 a month, have ten different credit accounts across various credit providers and are being threatened with imminent legal action.

That applies to a lot of us in the current economic climate, but sensible people do not seek debt counselling – it has unpleasant consequences, especially for the businessman and entrepreneur. Everything that can be done through debt counselling (except the temporary protection from creditors) can also be achieved in direct negotiation with those creditors.

This may involve repaying debts over a longer period of time, or such similar solutions aimed at stretching your cash flow, but typically means implementing the lifestyle changes necessary to achieve solvency. Gabriel Davel, CEO of the National Credit Regulator, says that this deluge of unnecessary claims is creating a bottleneck in the system and inhibiting the timeous debt counselling of genuine applicants.

“Debt counselling is meant to assist over-indebted consumers who can no longer afford to pay their monthly financial commitments, not for consumers who choose not to repay their debts.

“When certain applicants fail to fulfill their agreements with credit providers, it bogs down the system but more importantly may result in those consumers losing their assets through repossession.”

Righting the misconceptions about debt counselling

Where the misunderstanding has arisen is the protection applicants enjoy from creditors once they apply for debt counselling. Many consumers mistakenly believe this protection is permanent. Davel points out that it is only for 60 days – time for applicants to renegotiate all their credit facilities – after which the applicant is again exposed to the possibility of legal action and repossession. “When under debt counselling, you are required to pay the monthly installments agreed with your debt counselor. If you fail to make these payments, you forfeit the protection afforded you by the National Credit Act, and the credit provider has the right to take legal action against you, even when under debt counselling,” says Davel.

“It must be made very clear to consumers: even if people apply for debt counselling, they still have to repay their debts or they will certainly lose their cars or even their houses, depending entirely on their debt repayment record.”

When should you consider debt counselling?

Davel explains that debt counselling should be the very last resort for consumers as it comes with some medium-term drawbacks, such as being credit blacklisted for five years, thereby damaging one’s ability to apply for further credit or even to apply for certain jobs.

He advises consumers: “Start by letting your creditors know you are experiencing difficulty. You may be able to achieve the same results without debt counselling and its negative implications.”

Furthermore, Davel outlines what you need to know about debt counselling:

  • If you are married in community of property, your spouse will also come under review
  • Your name will be flagged at the credit bureau so you cannot incur additional debt
  • There are significant costs, both of an upfront and regular monthly nature, made to the debt counsellor
  • Once the agreement is in place you have to meticulously stick to the terms of repayment or the credit provider has the right to terminate the agreement and proceed to legal action to repossess assets.

Before becoming a financial writer and freelance journalist in 1997, Eamonn Ryan was a legal adviser, company secretary and alternate director at listed company Cashbuild Limited from 1988 to 1997. Since becoming a financial writer, he has focused on the business and financial sectors, as well as personal finance, writing for Finweek, The Star Business Report, Sunday Times Business Times, Business Day, Mail & Guardian, Entrepreneur, Corporate Research Foundation (which brings out a series of books each year ranking SA’s best employers and best managers), as well as a host of once-off and annual publications such as ‘Enterprising Women’ and ‘Portfolio of Black Business’. He also writes media releases, inhouse magazines and sustainability or annual financial reports for various South African corporates and financial services groups, including the Ernst & Young annual M&A book.

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1 Comment

1 Comment

  1. jaydeenwest

    Mar 15, 2012 at 22:16

    This article is clearly from the perspective of a business man, as the tables have turned and now the credit providers are suffering the consequences of allowing consumers undue credit. Every person under debt review is the consequence of the credit providers reckless behaviour whereby they failed to do correct financial checks on the consumers before allowing them credit.I agree that many of the points mentioned above are valid but much of what has been said is merely just advise from someone who has never had to take credit upon credit in order to survive. It is not a secret that more than half our population live off diminutive amounts of money. The only way that these people can put food on the table is to open food accounts, subsequently they then realize that they need to take out a credit card in order to repay the food accounts which amounts to a vicious cycle of credit to repay credit. So many take out clothing accounts so that they can afford to buy their children school uniforms as it is more feasible, for example, to spend R200 a month on the repayments of the clothing account than spending say R1000 on school uniforms at once. It is so easy to give advise on how people should manage their finances but it is unrealistic when applied in so many South African’s lives.

    I believe that there are a few Debt Cousellors out there who are misinforming the public about the benefits of debt review, but we are bound to have a few rotten apples in every tree. Never the less this rehabilitation process is something positive for so many South African’s who are drowning in financial struggle. I think its by time that the consumers become protected against so many powerful credit providers who have been dangling the carrot in front of the face of the consumers for years.The credit providers are the ones who have failed to educate the consumers, trying to lure them in with false advertising, credit cards in the post and gimmicks.

    Many are not interested in the consequences of debt counselling. This may be a difficult statement to digest for some members of the high society, but the ability to lay your head down at the end of the day and know that you have enough money to look after your family, and not have to worry about losing your assets is more important than the fact of being blacklisted etc.

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Personal Finance

(Infographic) The Financial Advice Millennials And Gen Zers Want To Know

Having a grasp on your financials is tricky, but it’s crucial if you want to be successful. And that starts with getting the right advice.

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Whether it’s saving for retirement or paying off credit card debt, money management can be a challenge. Of course, different people have different concerns – and that often comes with age. While a 60-something baby boomer might be organising their savings for retirement, your 20-something millennial might be focused on paying off student loans.

In a recent study, financial intelligence company Comet surveyed more than 1 000 people to uncover the top financial concerns of various age groups, as well as the financial advice millennials and Gen Zers want to know and what they hear instead.

Overall, saving for retirement was the top concern across all age groups, with saving for an emergency and affording monthly bills following in second and third. However, it’s no wonder these are some of the most pressing worries – according to the research, 23 percent of people admit they don’t have a savings account, and 43 percent reported not being on track towards their retirement goals. Perhaps that’s because they didn’t hear the right advice growing up. At least that might be the case for Gen Zers and millennials.

According to the research, these young people want to learn things such as how the stock market works, how to manage an investment portfolio, how to invest in real estate and how to build credit. Instead, they’re simply told how to create a budget, save for retirement and pay credit card bills in full every month.

Related: 7 Critical Things Your Financial Advisor Must Meet

Having a grasp on your financials is tricky, but it’s crucial if you want to be successful and comfortable. To learn more, check out Comet’s infographic below.

1532099434_2-cents-worth-infographic

Related: Financial Wellness Coach Nelisiwe Masango Shares Retirement Wealth Advice

This article was originally posted here on Entrepreneur.com.

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Personal Finance

14 Ways To Make Quick Cash On The Side

If you need money quickly, here are some solid ideas.

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Need to make some fast money on the side, whether it’s to pay off a credit card or to make your rent?

Keep in mind, making quick side cash isn’t about making a lot of money or getting rich. It’s about getting a shot of capital to help tide you over and put something extra in your pocket. However, some of these side-income ideas can build up your wealth over time. There’s many ways to accomplish this: By participating in the gig economy, the sharing economy, online sales networks, passive income techniques and more.

If you’re looking to make extra money in a relatively short period of time, check out these 14 slides.

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Personal Finance

Take Advantage Of Financial Democracy Made Possible By The New Stock Exchanges

Why should financial democracy matter to entrepreneurs?

Etienne Nel

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Because it creates a society able to afford products and services. Without it, even the innovative products and services that are entrepreneurs’ bread and butter will fail.

What is financial democracy, exactly?

It’s both the right and the ability of the (wo)man in the street and business people to make the decisions that affect their financial circumstances.

Financial democracy does not automatically follow political democracy. For almost 25 years after South Africa’s political transformation, the exclusiveness of our financial markets continued to deprive the vast majority of South Africans of the means to invest, save, and build wealth. South Africa has, therefore, never developed a retail stock exchange environment. So, it has deprived the majority of small and medium sized business of access to capital.

For entrepreneurs to truly flourish, they need a mechanism that easily and seamlessly connects the investor pool with every size of business. And, they need affordable ways to enter both the retail and institutional market.

In short, they need stock exchanges. Ones on which listing takes weeks rather than years, doesn’t break the bank for listing fees, and provides the shortest route to the largest possible potential investor base.

That’s not been possible in the stock exchange monopoly that existed for six decades. Now, it is.

What’s changed?

We now have four new stock exchanges. The resulting competitive environment will significantly reduce the cost of listing – and the cost for investors of buying and selling shares.

Instead of restricting share trading to people or organisations who already have tens of thousands of rands to invest or millions to spend on listing, by licensing four new stock exchanges, the Financial Services Conduct Authority (FSCA, formerly the FSB) has recognised that most financial decisions do not call for high levels of education.

Related: The Role Of Foreign Exchange In The Economy

Most people know how to spend their own grocery money. Most know that it’s better to keep their R1 000 monthly income in a coffee jar than spend R50 of it on bank account fees. People who can barely read and write are immensely skillful at manipulating air time deals to their advantage.

There is significant financial savvy in all social strata.

In the same way, although the mechanics of bookkeeping and accounting may be unfamiliar territory to many entrepreneurs, most have a clear understanding of the difference between profit and loss.

The FSCA has therefore enabled democratisation of the financial markets by enabling the broadest possible spectrum of entrepreneurs and investors to use stock exchanges to participate in and contribute to the economy – on their own rather than prescriptive terms.

How do you take strategic advantage of this democratisation?

  1. Base your business strategy on people’s instinct for making decisions in their own best interests. Trust financial decentralisation, such as one sees in crowd funding and in digital environments such as block chain, where people would far rather trust one another than institutions and governments. This is democracy innately at work in the financial environment and it’s accelerating organically as digital technologies give people more means and the confidence to help themselves – to information and opportunities. Ride the wave.
  2. Tap into people’s desire to innovate. Consumer organisations have proved that letting people interactively help them develop products is a powerful growth engine. Apply the principle by letting people grow your business by buying shares in it, giving you capital and themselves a platform on which to build wealth.
  3. Remember, the ultimate loyalty reward is equity.

Your financial democracy business plan

Look to list on an entrepreneurial stock exchange; one that was founded by entrepreneurs on entrepreneurial principles.

That means: A stock exchange that is already built on financial democracy and decentralisation. One that has, at its core, a single operational concept that keeps things simple for you, automatically gives you an immediate competitive advantage, and, ensures that no matter what your business needs in terms of attracting capital, the exchange can provide all the options in the same, consistent way.

What does such an exchange look like?

It has fintech capabilities. So:

It slashes your listing costs. It achieves this, among other things, by enabling you to populate an electronic prospectus, demonstrating your financial viability, and self publish.

It gives you control by having the granularity and agility to impose relevant governance right down to the individual investor. You get to decide the types and quantities of investors you want to attract. This also enables you to achieve black economic empowerment in perpetuity.

It leads the world by clearing and settling trades in T+0. No-one in the value chain has to hold large sums of money for days following a transaction. Small transactions become profitable. Investors don’t have to risk their life savings on a single large trade. A retail market is opened. An investment and savings culture is entrenched. The economy expands. Your business grows steadily.

It enables anywhere, any time trading via a mobile app that allows investors to see share value in real time. See economy expansion point above.

It integrates processes and procedures, simplifying them and ensuring rapid onboarding of issuers and, therefore, speed to market with new concepts and alignment with the digital economy.

It operates a principles-based regime. So:

It treats you, as an executive, with respect. It’s not prescriptive. It does not insist on excessive oversight, allowing the Companies Act to guide you to sustainability.

It does not attempt to squeeze your company into a pre-defined business or listings format. It recognises and works with your uniqueness.

It obviates the need for expensive specialist listings advisors.

It focuses on financial inclusion and access. So:

Shares can be bought and sold for no more than R1 000. See economy building point above.

Related: 27 Of The Richest People In South Africa

The new world of stock exchanges is integrated, synergistic, holistic, organic, self-fulfilling

Decentralisation of financial control, democratisation of opportunity leads to a whole new economy. One in which, for instance, a taxi operator can finance a minibus through a company in which his purchase gives him shares. A single purchase gives him two benefits: a vehicle on which to found his business and a longer-term investment in shares that he can trade. The funding company gains liquidity through access to a wider base of investors while being able to control who buys and sells and the conditions on which trading takes place. Increasing black equity in business becomes an organic, natural, self-perpetuating process.

Everyone wins in a decentralised, democratised financial market. And it’s the stock exchanges that drive the process.

As an entrepreneur, can you afford to ignore the acceleration that listing could give your business growth?

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