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Working through your debt

by Zahid Jadwat

As unemployment and poverty continue to rise unabatedly, an increasing number of South Africans are accumulating debt. The country’s poor economic conditions mean debtors are finding themselves unable to meet their financial obligations.

In an interview with Salaamedia’s Maryam Mkwanda, financial advisor Busi Selesho unpacked the meaning of debt review and explained how to overcome debt.

“Debt review is [conducted] when you cannot afford to pay your debts. So all your debts are then taken into consideration, and you are given an amount that you are able to afford. Debt review is a good thing, especially if you really cannot afford to pay anything that you owe,” explained Selesho.

According to a survey led by the Institute for Justice and Reconciliation (IJR) in 2021, almost half (47%) of South Africans have been unable to pay their debts or have lost income during the six months leading up to December 2021.

Although Selesho said debt review could provide relief to burdened debtors, she warned it could have a negative impact on the individual’s credit score and interest fees, amongst other fees, making it a costly solution.

“Now that your whole debt has been consolidated into one, you’re going to pay the company for doing that for you. Let’s say – maybe on a monthly basis – you’re paying us R3 000. Most of the time, R1 000 goes to them [the debt reviewer]. The money that goes into your debt is only R2 000 and that R2 000 that goes into your debt still will not be fully going into your debt. There will be charges for interest.”

Selesho’s advise considering additional costs associated with debt reviewers, indebted individuals should first attempt negotiating with their creditors to settle on an alternative repayment plan before resorting to debt review.

“Really, what the consolidation people are doing is just negotiation on your behalf – that’s what you pay them for. A lot of people are scared to go and negotiate,” she said.

According to Selesho, creditors have a legal obligation to facilitate alternative repayment plans should one be unable to pay immediately.

“You are much more stable, other than going on debt review which is going to cost you a lot of money. It will take you longer to pay off [so] you rather negotiate for yourself. Anyway, the creditors are going to call you so, when they call, you negotiate.”

Maryam Mkwanda spoke to Busi Selesho, an acclaimed financial advisor, on MidMorning Talk with Maryam Mkwanda. Listen to the full discussion here:

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