Debt Review and Debt Consolidation

In this episode of the Old Mutual Finance Podcast Series, Senzo Lubisi is joined by Robin Raichman, and they both unpack debt review process and consideration, debt consolidation and relief options, prescribed debt as well as listing and paid-up letters.  

Transcript

Debt Review and Debt Consolidation

Motheo Khoaripe 00:01

We all stumble along the way, don't we? Especially when it comes to our finances. Skipping your debt repayments has consequences. And do you know enough about what the law says when it comes to your credit agreement? Now in this second episode, we continue with our credit and debt collections conversation, arming you with insightful information that can help you as a consumer. Welcome to the old mutual financial literacy podcast series. I'm your host, Motheo Khoaripe. On this podcast series, we will get experts to answer some of your burning questions when it comes to managing your finances. It's an easy money conversation that's meant to assist you to have your money in control from debt, financial literacy, budgeting, saving and financial cover. In this episode, we're joined by Robin Raichman, old mutual finance head of recoveries and debt review, as well as Senzo Lubisi, the head of collections and ECM strategy at old mutual finance. Gentlemen, welcome to the podcast. 

Senzo Lubisi 01:02

Thank you, Motheo. Thanks. 

Motheo Khoaripe 01:03

Let's talk about money starting with you Robin joining us here on the second episode just around your role at Old Mutual and how different is it from Senso's work at the financial services firm. 

Robin Raichman 01:16

Once again, thanks for the warm welcome, Motheo. So my role within old mutual finance is to oversee and optimize all the late stage recovery operational areas. This includes pre -legal call center, external debt collector and attorney outsourcing for collections and litigation, debt sales, debt review portfolio, and all the other legal processes like administration and sequestration. 

Motheo Khoaripe 01:45

so you're the one no one needs to mess with when they've taken out a loan. But we'll get into the deeper senses of what you do there. I want to start by recapping Senzo firstly on the conversation we had in the first episode around applying for credit, the benefits of keeping good repayment habits and what to do when you fall on hard times. Just give us a bit of a recap of what consumers can do to make sure their finances are in order. 

Senzo Lubisi 02:09

Thanks, Motheo. And just to recap, taking it from the top, it is absolutely vital that customers have a clear objective in understanding regarding why they need credit. So a bit of research must actually take place for customers to understand, you know, their financial circumstances. There is in regarding why they require credit and then be able to make an informed decision. They must also check their past payment behavior, which may have led to perhaps in the past debt review, sequestration, judgments, etc…because that is a prerequisite for a credit application. Most importantly, as well, customers must be absolutely honest about their net disposable income, which is the net salary, less deductions, i.e., credit installments, less expenses, which could entail groceries, transports, school fees, etc, which determines the ability to repay an installment when the loan is granted, in short, affordability. And some of the benefits of keeping a good repayment habit will include building and maintaining a healthy credit score and history because it's important that the quality of your credit can have a far-reaching effect in many aspects of your daily life. In addition to lenders and credit companies checking your credit insurance and landlords, utility providers, or even potential employers may check your credit in order to offer employment, particularly in the financial services industry. 

Therefore, keeping a good repayment habit is also vital for future credit application. And then what you do when you fall in hard times, communication is critical so that we can work together and work out the best solution for you. Therefore, we invite customers to proactively reach out to us to determine their financial circumstances, whether they can be able to afford and subsequently work out a payment plan that is best suited, of course, depending on eligibility. 

Motheo Khoaripe 04:28

Senso, thank you very much for that sound recap around credit applications, but things won't always go right, right? So I think we need to speak to Robin now. And if you're using an analogy, Robin, I almost see you as the principal's office. If you don't do well, if you're doing all the wrong things, you're going to be sent to the principal's office and they'll have to deal with you. Am I right in saying that firstly? And secondly, just getting to the debt review conversation, what is debt review and can I pay the debt review installment if or when I want to? 

Robin Raichman 05:04

So that's one way of looking at Motheo, I think there's so many solutions out there for consumers and it's our obligation to make them aware of that. So debt review is one of those and it's a legal process which is governed by the National Credit Act. It's available to customers who qualify on the basis that they're over indebted and no longer able to service the credit on the original terms that they agreed to and really the purpose of debt review is for debt counselors to manage the outstanding debt with creditors on their behalf. 

This is mainly achieved by your debt counselor entering into agreed restructured terms with your creditors on your behalf, like I said, with set commitments as to when you will pay and how much you will pay monthly. The thing is if you fail to make payment in terms of the new terms under the debt review process which you've agreed to, you do run the risk of creditors terminating your debt review application which then puts you at risk so it's not really a voluntary option. However, it is understood that when you are under debt review, that doesn't mean that your financial challenges stop. So if that does occur under the process, it really is best to communicate openly and clearly with your debt counselor in that regard who will then engage with your creditors to possibly make some sort of short -term adjustments to your payments. 

Motheo Khoaripe 06:27

And debt review seems to be quite a stigma, especially around a lot of consumers. People won't readily tell you that I've taken up debt review, but it is an option that is legally there for South African consumers to look at if they're really, really under the torch. 

Robin Raichman 06:44

It is definitely, and it's one of those options that is available. We always encourage customers to reach out to their creditors first to see what options are available, but most definitely, if that's the best one, then get the necessary information on it to make an informed decision. 

Motheo Khoaripe 07:05

Senzo, let's come back to you then. Once going through processes like debt review, one can feel like the repayment is taking eons, it's taking too long, it's really dragging, but how long will it take until I'm debt free in this particular situation? 

Senzo Lubisi 07:24

Thanks, Motheo. So, getting to a point of being debt free is solely dependent on how customers will prioritize the payment in terms of the original agreement which were signed. It's always best to keep to these terms and where possible pay surplus funds towards an account in order to reduce interest charges and repay the debt sooner and then if customers encounter financial challenges, you know how soon they can reach out to credit providers like Robin just alluded and then it depends on how quickly you know they're able to tackle the problem that's facing them. So, the engagements remain key where customers would raise their hand openly and timeously so that they get a best chance in getting a solution that is favorable.  

Motheo Khoaripe 08:17

I think it goes back to what you had said earlier a sense around the responsibility we have as consumers to also make sure that our affairs are in order we can't just leave it to the creditor to keep chasing us for the repayments. Robin I want us to bring the conversation now to real -life scenarios right if I have more than one loan and I feel you know am I able to consolidate all the loans that I have into one and have one big repayment that I deal with instead of various ones on my account. 

Robin Raichman 08:48

Yeah, good question, Motheo. I mean, it's quite possible. However, for existing loans to be consolidated to pay a single installment, customers do need to go through a loan application process for consolidation. And if customers have multiple loans which they fear that they might default on, or which are already in arrears, then it will be best to contact Old Mutual to discuss the options available, given their circumstances. Just maybe to speak about some of the benefits of consolidation. You're looking at paying a single service fee and credit protection plan. You also get a single fixed monthly payment. And often that monthly payment is lower on your qualifying credit. Consolidating your credit can also free up some cash for you, depending on the deal that gets done. And I'd just like to say our experienced credit consolidation teams at old Mutual Finance are quite capable of handling all the admin of settling your credit commitments for you. 

Robin, then, while as a consumer, I consider a dead review, can I acquire further credit while I'm under that process? 

Robin Raichman 09:54

Motheo, that's a question that often gets asked, the answer to that is no. The reason being is that it could be deemed reckless credit granting if that happens. And being under debt review means that you are not able to pay your current debts on the terms which you initially agreed with your creditors. So debt review, like I said before, is intended to assist you manage your finances so that you're able to service your debt obligations whilst ensuring that you have enough money for necessary living expenses. If you do exit debt review successfully, then you will be able to enter the credit market again and apply accordingly.

This first part is 10h40 seconds 

Incoming stitch for Episode 3…

Motheo Khoaripe 00:02

Senzo, we've heard from Robin saying debt consolidation can be an option for consumers, but what can one consider before taking that step? 

Senzo Lubisi 00:12

Yeah. Thanks. So indeed that consolidation is one of the relief options that is made available to customers. But I would advise that depending on customers financial circumstances or a lot of what led to those financial circumstances are based on unexpected life events. So it would be crucial for customers to gauge whether the difficulties they're facing are temporary or long term because we've got various relief options i .e. if it's a temporary measure then we can look into short term arrangements that could last between three and six months of longer term arrangements basically versus the consolidation that could take much longer. 

Motheo Khoaripe 01:00

Senzo and Robin, I'd like to bring you into this particular question. When I was younger and more irresponsible, you know, I got a clothing account and I started not paying it back because I'd lost my part -time job. And I thought, look, if I avoided, nothing will happen. I didn't understand how these things work until I got a call saying that I've been handed over to external attorneys. What does that mean? Being handed over in terms of your loan, your repayment, being handed over to an external attorney. What are we talking about there? 

Senzo Lubisi 01:32

So if it gets to a point where we have been unsuccessful in contacting a customer to discuss the various relief options then we have that we have available and there's a history of consistency and non -performance on a loan then we might need to consider using an external debt collector or attorney to assist with the recovery of the outstanding funds. If this occurs it will mean that customers would need to make arrangements for repayment directly with them in order to service your loan. However, it's important to note the external attorneys would operate within the service level agreements of all mutual finance so they would interact with customers in a manner that's within our values so that's critical.

Robin Raichman 02:34

Yeah, I mean, it happens. And unfortunately, once a loan has been handed over to an external debt collector or attorney, depending on the process that it's in, customers must also understand that they are going to be liable to pay collection costs or fees on top of the outstanding debt, which results in taking longer for the loan to be paid off. These are why we encourage all customers to really reach out to old mutual finance as soon as they experience financial difficulties so that we can assist with a suitable solution for repayment before it gets to that point, because our intention is to get you to a point of being paid up. 

Motheo Khoaripe 03:32

Robin, I think the main mistake we make as consumers is try curl away in a corner and avoid the credit provider even when they're trying to contact us. Firstly because we're ashamed, we're not paying back what we promised to do but also there is still that stigma of having you know you're being flagged as a bad payer if you will. Can you remove the debt review flag from your name? 

Robin Raichman 03:47

That is so true and that listing will be on a consumer's profile on the credit bureau for as long as they're under debt review and they can't exit or withdraw the process unless they receive a clearance certificate from their debt counselor or they have a court order releasing them from debt counseling. Once this occurs and that generally happens when all your debt is repaid then the debt counselor will proceed to remove that listing from the bureau and that obligation doesn't sit with all mutual or any of your creditors and it's for these reasons that we really caution customers to consider debt counseling carefully before applying to to do so and only if they're not able to make suitable arrangements with their creditors and if customers are seeking to to apply for debt review really go out there and look for all the necessary information to be able to make an informed decision and they're more than welcome to visit old mutual finances website where they can get some critical information around the debt review process to really empower their financial journey. 

Motheo Khoaripe 04:53

So the financial advice is not only when you're making money, but it's also when you are in financial trouble that you should be making that call. Senzo, people look at this particular process whether in any form, whether it's dead review or they've skipped a couple of payments as something that doesn't work, they should be ashamed of it, they should have had the money, but life happens. So how important is it for them to approach a credit provider to say, hold my hand, I've stumbled a bit, get me through this process so my finances are back in order. 

Senzo Lubisi 05:27

Yeah, thanks Motheo. It is absolutely crucial and those processes I explained at the point of application and when we displace the loan to customers that we need to maintain the relationship, we need to take them in a journey and where they hit in our financial difficulties, you know, they must come back for us to be able to assist based on their circumstances. I mean, we're talking about real people with real problems, so we should be able to chip in and assist as much as possible. And over the years, we've had customers that have come through proactively reaching out to us or various campaigns that we also run to reach out to customers, but then it all relies on customers responding, saying yes indeed, I mean, financial difficulties, I need help. And then we're able to enroll them into their relief programs. I mean, when you look at short term financial relief programs would include relief such as maternity as well, where, you know, it's a temporary situation where customers are faced with reduced income over a cost of three to six months. And then we're able to take that installment to 30% of the original installment until that period is over. And then subsequently when customers are earning their normal income, then they reset to the original installment. And they really appreciate that because it is a burden with additional expenses and then other forms. So we really do encourage customers to speak out, talk to us because they'll always be an opportunity to assist. 

Motheo Khoaripe 07:15

And Robin, after this entire process of somebody being walked through again to get their finances in order and repay right up until the end is an option of getting a paid up letter, an official letterhead from the credit provider to say, you're now done with the process. You've repaid us all the money you promised and whoever asks for your profile, you can also produce this letter. 

Robin Raichman 07:39

I mean, we're all looking at the endgame and the sole objective from a consumer and the creditor is to make sure that we get you to that point. So if you get through that process and we can clear the debt, then 100%, Old Mutual Finance definitely provides paid up letters to confirm that your account has been settled in full, provided that that has happened. And that is the reward at the end of the day that a customer can walk away with saying that they've got the assistance that they needed, and they successfully exited the process. 

Motheo Khoaripe 08:20

and who doesn't like a great report card right then Robin let's look at you know how one can pay their loan after it has been prescribed and of course that's a financial jargon for so I'd need you to at least explain to those listening what is a prescribed loan firstly and can I pay my loan after it has been prescribed 

Robin Raichman 08:44

Thanks for that loaded question. So I think a couple of things there. Let's start with what prescription means. So in general, prescribed debt refers to debt that is no longer collectible or legally enforceable by your creditor. And how debt does or doesn't prescribe is really dependent on the type of credit. And debt usually prescribes if you have not made payment within a three -year period or you haven't acknowledged that you owe the debt or that you haven't entered into a promise to pay with your creditor. So one thing to look out for and be very aware because we might sit there and think, OK, a long period of time is passed by and therefore I don't owe this debt anymore. But creditors might have taken valid legal steps to interrupt prescription because of your failure to make payment. And therefore, debts that customers might think has prescribed has not. Allowing your debt to get to this point after such a long period of time might mean that you run up additional costs in terms of interest, fees, collection costs, and especially legal fees, which isn't ideal in your journey to becoming debt free, not to mention the negative effects on your credit score from a repayment history. So to answer the question about whether you can pay your loan after it has officially prescribed, sadly not. It's unlawful for any creditor to collect money on such debt. And this is why we encourage all customers to talk to old mutual as soon as they experience financial difficulties so that we can assist in getting you a suitable solution for repayment and prevent these kind of things from happening. 

Motheo Khoaripe 10:33

Robin, what should we remember? We've had a keen conversation and you've given us some highlights of what we need to look at when either our loan is handed over and all the options that we have. Just give us those key points again. 

Robin Raichman 10:49

Thanks Motheo, for allowing us to address burning issues which are applicable to all of us. But I think if we have to recap on some of the items, there's a lot of solutions and processes within the collections process, such as the ones that we mentioned around debt review, your account ending up being handed over to an external attorney for either collection or litigation, debt prescribing. And all of these things can happen and do happen. But what we do want to reassure our customers is that we have the skilled teams to address any questions that you might have throughout the process within the various teams, which is quite a unique thing to have as an organization. So we really encourage customers to reach out at all points of the process whenever they're experiencing financial difficulty to get some sort of insight and information that can guide them through their journey and get them to that point where you said we have that paid up letter and we can all exit the party as being happy. 

Motheo Khoaripe 12:03

And Senzo from you, things to remember, things to keep in mind?

Senzo Lubisi 12:05

Yeah, thanks. Yeah, just to recap. I think along the lines of how long will it take customers until they're debt free. And we did make mention that that's really dependent on how they can prioritize repayments and sticking to the original agreement. And it's always best to keep to these terms and where possible, like pay surplus funds, it goes a long way in assisting to reduce interest charges. And when they fall into financial difficulties, you know, how quickly they can reach out to the credit providers openly and fabulously in order to get the best chance of being assisted. So really, it's about, you know, keeping the engagement happening. And then credit providers will always be available to take the money to rehabilitate into financial freedom. 

Motheo Khoaripe 13:05

Another great conversation here on the old mutual financial literacy podcast series and our next episode will look at how all of this affects your credit report.