Debt: the kiss of death

worried man with randsRecently I had two very disturbing conversations about the world of debt. The first was a conversation with someone from the Credit Ombud about how debt administrators and debt collectors farm debtors’ books.

Although this practice is less lucrative now that the National Credit Act has put limitations in place in terms of interest charged, many debt administrators (often lawyers) and debt collectors live off the fact that their clients will spend the rest of their lives paying off their debts thereby providing the company with a revenue stream for life.

It is actually in the interests of these companies that the client does not pay enough each month to settle the interest portion of the loan. Unpaid interest accrues further interest which has a compounding effect so that the debt keeps growing and the chance of it being settled is negligible. So each month the company receives R200 or R300 a month from thousands and thousands of indebted people, which when you add it all up becomes a very healthy monthly income for the company.

The second conversation was with the head of the financial advisory unit of one of South Africa’s leading financial institutions. He told me that through discussions with many financial advisers he estimates around 75% of clients are in serious debt. Remember these are not people living on the poverty line but people who have a financial adviser.

Middle income people face lifestyle-related debts where they have lived beyond their means or have lost their jobs. Higher income earners typically have debt as a result of investments gone wrong. Many of these people speculated on property and other investments and borrowed significant amounts of money which they cannot pay back.

South Africa, like many of the Western countries, are facing a very serious debt crisis. Every day I receive emails from readers who are drowning in debt and in many cases there is little we can do to help as they have left the problem too late.

For those of you who are already too far into the debt cycle, start to deal with it now and get good advice so that you don’t end up keeping some debt lawyer in a Ferrari. Contact people like the National Debt Mediation Association (NDMA) on 0861 11 6362 or speak to your bank.

For those of you considering taking out your first credit card or buying a new car, heed the warnings and do not take on debt you cannot afford, otherwise it may cost you for the rest of your life.

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