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Help clients break out of debt

01 February 2009 Andre Snyman, Consumer Assist

Debt is a tricky subject for financial advisors. How far should your financial advice extend and how can you help your clients who find themselves in financial trouble ?

Many brokers have clients who are slipping into dangerous waters financially, often with disbelief and a sense of shame and anxiety. But in light of 11 interest rate hikes since mid-2006, and inflation that has risen faster than most salaries, even those who have tried to manage their finances carefully have found that the cost of living has accelerated beyond their salaries.

The extent of the problem

We see daily examples among our clients: the couple who had no debt until one fell seriously ill and, without medical aid, faced medical bills totaling hundreds of thousands of rands. Or the bread winner who had a great job until he or she was retrenched and now cannot find another job to cover the bond repayments, car repayments, school fees and more.

Each month in South Africa 7 000 cars and 2 000 homes are repossessed. Job losses are accelerating and car sales are down by 35%, forcing 100 dealerships to close and 1 600 motor industry franchise operators to scale down operations with around 4 500 jobs lost. The mining industry shed 35 000 jobs in the third quarter of 2008 alone and more could follow.

Advisors offering solutions

This means that an increasing number of families will find themselves in financial crisis. What can advisors do to help their clients weather the storm ? One of the best solutions is debt counselling. Referring your clients to a debt counsellor can add incredible value to your clients’ financial status, without you having to get involved in providing a solution.

A real life example is of a man whose debt extended to R3 004 985, including his bond. He was paying off R24 400 a month on his bond, but the interest over the 240 months of the loan term would amount to R2 783 466 alone. Over 20 years, he would pay a total of R5 788 451 on his debt.

Real life example

The debt counsellor restructured his debt and after negotiations with creditors, the debt was reduced to R2 862 133, the repayment term was reduced by 92 months and his monthly payments dropped to R16 890. The total interest payable over the term of the debt reduced to R1 544 233, including debt counselling fees.

Debt counselling fees are very low and are strictly regulated by the National Credit Regulator. Basically there is a R50 initial consulting fee and fees may not exceed R3 000 for an individual or R4 000 for a couple.
Referring your clients to a debt counsellor can assist them to pay off their debt in a third of the time, enable them to keep their car or home – or scaled down versions - and help them to acquire the financial management knowledge that can lead to building wealth. However, they have to act before a summons arrives or judgements are taken against them.

Make sure that you refer your clients to a reputable debt counselor. Consumer Assist is the largest umbrella organisation in South Africa for debt counsellors, offering an interactive debt calculator and links to debt counsellors on its website, in addition to a call centre.

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