Author - Lauren Heekes
Juvany approached us for a Debt Review Assessment. Once completed he wanted to know what the Debt Counselling Fees were for and how much they would cost? Here's Juvany's story.
Juvany’s Story
Juvany had R210,000.00 in unsecured loans and was paying R11,000.00 per month in installments. Due to loss of income he approached us for an assessment to see what Debt Review could do to assist him.
Juvany's Assessment?
1. Current Contractual Agreement with Credit Providers
Juvany's current contractual agreements with his Credit Providers included a combined installment of R11,000.00 per month at an average interest rate of 22% over 26 months.
Interest paid back to the credit providers over 26 months = R55,595.00
What fees are paid to the Credit Providers and Banks:
Combined Admin Fee charged by Credit Providers for 6 accounts = R345.00
Credit Life Insurance = R945.00
Personal banking charges to pay 6 account installments = R165.00
2. Debt Review Contractual Agreement with Credit Providers
Debt Review reduced the above agreement to an installment of R4,850.00 at an average interest rate of 5% over 60 months.
Interest paid back to the Credit Providers over 60 months = R27,780.00
If Juvany's situation improved and he wanted to pay more towards Debt Review he could. This would in effect reduce the interest paid back to Credit Providers as well as the term.
Even though the current Debt Review contractual term is for 60 months, Juvany can reduce that term at any time by paying more towards his installment each month, or as a lump sum with bonuses once a year.
What fees are paid to the Debt Counsellor, Payment Distribution Agency and Banks
Debt Counselling After Care Fee = R242.50 (He was paying R345.00 to Credit Providers to manage his accounts)
Payment Distribution Fee = R90.00 (He was paying R165.00 in banking charges)
Credit Life Insurance = R945.00 (YALU reduced this to R675.00)
Admin Fee to Credit Providers is removed = R0.00. i.e. he will not longer be paying R345.00 in admin fees to Credit Providers.
Send Your Questions to Negociate Credit Solutions at email contactme@negociate.co.za or get additional contact information below for online assessments, facebook messenger or submit a "Call back Request"
Debt Counselling Aftercare Fee
This is a regulated fee. The Aftercare Fee is based on 5% of the installment capped at R450.00. i.e. if your installment exceeds R9,000.00 per month then the fee would be capped at R450.00 per month. Any installment below R9,000.00 would incur a fee of 5% of the installment.
Did you know that when you start Debt Review the Admin Fees that Credit Providers charge you monthly is removed. The Admin Fee is also regulated for Credit Providers and is currently R69.00 per account. Juvany had 6 accounts. The combined Admin Fee he paid monthly to Credit Providers for managing his loans was R345.00. This fee is included in his monthly installment and so he doesn't realise that he is actually paying this. What this means is that not all of the money he pays to his installment goes towards reducing his debt. R69.00 for each account is first paid towards the admin fee and the rest to interest charges and capital balance.
His Debt Counselling Aftercare Fee under Debt Review, which is similar to the admin fee charged by Credit Providers, is only R242.50 per month. This fee is R102.50 less that what he is currently paying to his Credit Providers.
Client's have often commented on these fees saying that they are exorbitant. However they are generally less than what you would be paying under your normal Credit Agreement.
Have you ever sat on the phone to a Credit Provider for 30 minutes to resolve a problem? What are your costs for the time, the telephone costs and the frustration? Now imagine doing that for all of your accounts for 5 years. That is only one part of the entire management process that a Debt Counsellor has to perform in order to ensure a successful process.
The Debt Review process is also far more admin intensive and there are costs and license fees involved in running specific software programs.
A Debt Counsellor actually makes very little profit out of the monthly fee they receive for managing a consumer's accounts.
Send Your Questions to Negociate Credit Solutions at email contactme@negociate.co.za or get additional contact information below for online assessments, facebook messenger or submit a "Call back Request"
Payment Distribution Agency Fees
This is a regulated fee. Debt Counsellor's are not allowed to receive and distribute your installment. The National Regulator set up a regulated agency to receive and distribute your installments to Credit Providers. This is to prevent fraud from occurring.
This fee is normally lower than your banking fee charges to pay each account yourself.
In Juvany's case his banking charges to pay each installment amounted to R165.00. This fee would now only cost him R90.00 under Debt Review.
The Payment Distribution Agency (PDA) fees are regulated and tiered as follows:
Installments between R0.01 to R200 = R5 Vat inclusive Charge per account.
Installments between R200.01 to R500 = R10 Vat inclusive Charge per account.
Installments above R500 = R15 Vat inclusive Charge per account.
Credit Life Insurance
Whether it’s a Personal Loan or Credit Card, you are likely paying for Credit Life Insurance as part of your monthly Debt Repayment to Credit Providers.
Credit Life Insurance is insurance that provides security in the event that you are unable to repay your debt. These events include but are not limited to retrenchment, disability or death. The Credit Life Insurance policy will pay the debt either in part or in full to the bank. It protects both you and your loved ones from the strain of having to service debt when life happens.
Credit Life Insurance regulations protect consumers. The maximum premium that can be charged by Credit Providers per month is capped at R4,50 per R1000 borrowed. For example, if you have borrowed R60 000, the maximum Credit Life Insurance that you should be charged is R270 (R4.50 x 60) per month.
The regulations also ensure that all providers at the very least cover death, disability and retrenchment.
In essence the law protects you from being overcharged and most importantly you can now shop around for a policy that meets all your needs.
Cut costs by taking a good look at your current loan agreements and ensuring you are paying the best possible rate for your Credit Life Insurance.
We recommend YALU. You can however source any Credit Life Insurer to reduce your Credit Life Insurance charges on your debt.
Juvany's Credit Life Insurance was reduced from R945.00 to R675.00 by YALU.
Once this process was completed Juvany's Debt Review installment reduced again from R4,850.00 to R4,580.00.
Send Your Questions to Negociate Credit Solutions at email contactme@negociate.co.za or get additional contact information below for online assessments, facebook messenger or submit a "Call back Request"
Are there any once off fees involved?
Restructuring Fee
When you start the Debt Review process your new contracts have to be drafted and accepted by each Credit Provider. This process takes about 30-60 days to finalise. This is a regulated once off fee and is included in the Debt Review Installment. There are no out of pocket costs involved. All Credit Providers understand that these fees must be paid and that the consumer cannot afford these fees out of pocket. The proposal that is provided to the Credit Provider indicates these fees. This fee is based on single or joint applications.
Single application = R8,000.00 per person single or married Out of Community of Property
Joint application = R9,000.00 per couple married In Community of Property.
Legal Fee
Once the Credit Providers have accepted the new Debt Review proposal the agreement must be legalised either by a Magistrate's Court or the National Consumer Tribunal.
The Magistrates Court Fee and the Attorney's Fee is more expensive and is determined by each Debt Counsellor's Attorney. You can expect to pay anywhere between R4,000.00 to R7,500.00. This fee is also included in your installment and forms part of the process.
The National Consumer Tribunal (NCT) Fee is much lower. This fee is broken into an Application Fee of R400.00 and additional R500.00 to Draft the Application. The application fee increases by R100.00 per year. Currently until March 2021 the Legal Fee is R900.00. After March 2021 the fee will increase to R1,000.00 and so on.
It is better to opt for a Debt Counsellor that uses the National Consumer Tribunal (NCT )to legalise contracts. Why? The Credit Providers will receive their installment faster as the fee is much lower than a Magistrates Court Application and your term under Debt Review will be shorter.
There are instances though where a Debt Counsellor that normally uses the NCT to legalise contracts, has no choice by to put the application through the Magistrates Court. Those reasons will be dealt with in a separate article.
In conclusion
Once Juvany realised that the fees were actually reasonable and he would be saving a lot on interest charges he was happy to proceed. Debt Review was going to make a huge difference to his current situation.
Send Your Questions to Negociate Credit Solutions > https://bit.ly/3i3PIwl or email contactme@negociate.co.za
There is no quick fix to getting out of debt. Make sure that you partner with a Debt Counsellor that is going to assist you to get out of debt
.
If you would like us to conduct a free financial assessment for you here are contact options:
1.Complete our online assessment form at http://bit.ly/39miXXx
2. Send us an email to contactme@negociate.co.za
3. Submit your query via our FaceBook Messenger app https://bit.ly/3i3PIwl
4. Complete a call back request on our website at http://bit.ly/38Aoyuc
A consultant will contact you to discuss the way forward. Please note that you are not obligated to proceed if you feel that the solution we offer you will not assist you enough financially.
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About our Author
Lauren is a registered member of the National Credit Regulator. Prior to that, she worked as a Financial and Technical consultant for McGregor-BFA (Now INET-BFA). McGregor-BFA provided Trading and Market related data as well as Investment management software to Asset Managers, University Business Schools and Investment entities. Thereafter experience was advanced to the Property Market working as a Project Manager for Propertyi. But it was her career at the IEB in Adult Education that inspired a passion of hers to educate consumers about responsible ways of managing their financial lives and the long term advantages of doing so. It is her belief that financial education should be taught from an early age. By doing so we can create a country that is economically stable, driven not only by work ethics, but by becoming Financially Independent too.
