As more and more consumers experience increased financial pressure due to increasing living expenses, most of these consumers now consider applying for debt review in order to reduce their debt repayments and stabilise their living expenses.
A client of ours, Cedric*, allowed me to use his information in this article as an example of a real life debt review scenario.
Cedric* applied for debt review during December 2011 after a recent divorce left him in a severe financial predicament. At the time Cedric* was employed as a factory worker and his salary was insufficient to repay his debts as set out in the original credit agreements.
Cedric* earned a net-salary of approximately R3200 with his living expenses amounting to R2250. He was contracted to seven credit agreements which consisted of two personal loans, two furniture accounts, two clothing accounts, and a cellular contract which was in arrears. The total debt of the aforementioned accounts amounted to R33,000 with a total repayment installment of R2800 per month. Seeing that Cedric* only had R950 available to pay his debts, he required an additional R1850 per month to service his debt and cover his living expenses. Subsequent to his application for debt review, Cedric* was listed with the National Credit Regulator as having applied for debt review which in return notified all relevant credit bureaus.
This is standard practice, as once a consumer has applied for debt review, he/she may not be granted further credit due to them being unable afford their current credit agreements.
Reducing Monthly Debt Instalments
Our firm negotiated with Cedric’s* credit providers to reduce the interest rates on the credit agreements in effect reducing the repayment period. On the personal loans Cedric* saved 5.5% per annum and a further 6.0% per annum on the furniture stores and clothing accounts. Cedric’s* total monthly installment was calculated at R950 per month which serviced all of his credit agreements. This reduced Cedric’s* repayment to creditors with R1850 per month or approximately 66%. The total repayment period was originally calculated at 4 years and his last instalment would have been December 2015.
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Getting Out Of Debt Review
During December 2013 Cedric* advised that he has received a promotion at work and can now afford to increase his monthly instalment to his creditors in order to settle the debt sooner. We redrafted Cedric’s* budget and calculated that he can now afford to increase his instalment to R1450 per month. A new restructuring proposal was drafted and served to all his creditors who were so pleased with the increased installment that they granted a further 8.5% reduction in interest.
Whilst in debt review Cedric* enjoyed the financial freedom and peace of mind that the process offered as his credit providers could not proceed with legal action against him.
Cedric* settled all his debt during March 2013, seven months premature to the originally proposed December 2015. Once these debts were settled we requested paid up letters from all of Cedric’s* credit providers and issued him with a Clearance Certificate confirming his debt freedom. We notified the National Credit Regulator and his record was cleared with the credit bureaus.
Prior to this article we contacted Cedric* to confirm whether his credit record was impacted in any way by the debt review process and he confirmed that his record was clear and he immediately applied for a vehicle finance after he received his Clearance Certificate and the credit was granted. He also thanked us for the all our efforts and assistance during his debt review and assured us that the process taught him the valuable lesson of budgeting and living within his means.
*Real name has been changed to protect client’s identity.