The current economic crunch calls for a shift in thinking on the part of financial services providers in terms of how they respond to consumer debt, says Terry Kier, CEO of Credit Health Financial Services. South Africans, he says, are on average spending 80% of their disposable income on debt, with the average consumer owing to 14 different credit providers at any one time.
According to the 2008 financial report of the National Credit Regulator, the co-operation between different divisions or product lines within banks and other financial services providers when dealing with a debt-stressed consumer is an area of concern. The preferred response to an enquiry from a debt-stressed consumer is to encourage them to engage with their primary lender, which is usually a bank. Such an approach offers the best possibility of successful rehabilitation and least risk of people losing their homes as a result of debt.
It is clearly also in the banks’ interest, to restructure a consumer’s debt servicing commitments while preventing consumption debt exposure to threaten their primary asset class, being residential bonds. The unfortunate reality is that in a great many instances the different divisions or product lines of certain banks are unable to reconcile their competing interests, effectively allowing aggressive debt collection by credit card or motor vehicle divisions resulting in default on mortgage repayments.
Despite the fact that the South African banking system is robust, the average consumer remains severely indebted, Kier says. It is therefore imperative that financial institutions innovate and assist in these demanding times – in the interest of the consumer. Credit Health has heeded this call by developing a financial plan which is uniquely designed for the individual within the context of the South African economic and political reality.
“While some financial institutions are electing to copy our service model, the Credit Health concept is unique. Underpinned by a debt consolidation equity release mortgage, our service is the result of much research into individual financial planning and a deep understanding of the country’s historical legacies, and commercial realities of the future.
"We not only provide the client with an innovative and easy-to-understand consolidation plan, but we also manage the debt settlement process as well as the disbursement of payments to the client’s creditors. As Credit Health remains vendor-neutral and is not solely aligned to any specific credit provider, we are in a unique position to assist the client and monitor their spending habits for a 12-month period after they have elected to consolidate their debt.”
Kier stresses that consumers must take care when evaluating a product of this nature and understand that their home could be at risk if they don’t maintain payments of their mortgage or any other loan secured by the property.
“You will pay a rate in excess of the current prime rate on the loan amount, but in reality we should still be able to recommend a financial plan that offers you with a cheaper alternative than your current monthly repayments. You will be able to facilitate this if there is enough equity in your existing property.”
In conclusion, Kier says that while debt consolidation is gaining momentum as a very viable lifeline for consumers, especially those who have judgements or a bad credit history, the truth about such financial lifesavers is that they can also sink you if you use them to continue living as before and don’t make changes to your spending habits.