Early settlement of debt and how to get there
The National Credit Act regulates how accounts can be settled early. To begin with, a consumer would need a settlement amount from the credit provider and the NCA gives the consumer certain rights about this.
Section 113 of the National Credit Act: Statement of settlement amount.
(1) At the request of a consumer or guarantor, a credit provider must deliver without charge to the consumer a statement of the amount required to settle a credit agreement, as calculated in accordance with section 125, as of a date specified in the request.
(2) A statement requested in terms of subsection (1)
(a) must be delivered within five business days;
(b) may be delivered
(i) orally, in person or by telephone; or
(ii) in writing, either to the consumer in person or by SMS, mail, fax or email or other electronic form of communication, to the extent that the credit provider is equipped to offer such facilities, as directed by the consumer when making the request; and
(c) is binding for a period of five business days after delivery, subject to subsection (3).
(3) A statement delivered in respect of a credit facility is not binding to the extent of any credits to that account, or charges made to that account by or on behalf of the consumer, after the date on which the statement was prepared.
(4) On application by a credit provider, the Tribunal may make an order limiting the credit provider’s obligations to a consumer in terms of this section if the Tribunal is satisfied that the consumer’s requests are frivolous or vexatious.
If the consumer is happy with the statement of settlement amount, he or she can settle the credit agreement early and proceed in terms of Sections 122, 125 and 126 below. If the consumer is not satisfied that a statement is accurate, he or she can refer to section 115 at the end of this article.
Section 122 of the National Credit Act states:
(1) A consumer may terminate a credit agreement at any time by paying the settlement amount to the credit provider, in accordance with section 125.
(2) In addition to subsection (1), a consumer may terminate an instalment agreement, secured loan or lease of movable property, by:
(a)surrendering to the credit provider the goods that are the subject of that agreement in accordance with section 127; and
(b) paying to the credit provider any remaining amount demanded in accordance with section 127 (7).
Section 125. Consumer’s or guarantor’s right to settle agreement.
(1) A consumer or guarantor is entitled to settle the credit agreement at any time, with or without advance notice to the credit provider.
(2) The amount required to settle a credit agreement is the total of the following amounts
(a) The unpaid balance of the principal debt at that time; (b) the unpaid interest charges and all other fees and charges payable by the consumer to the credit provider up to the settlement date; and
(c) in the case of a large agreement
(i) at a fixed rate of interest, an early termination charge no more than a prescribed charge or, if no charge has been prescribed, a charge calculated in accordance with sub¬paragraph (ii); or
(ii) other than at a fixed rate of interest, an early termination charge equal to no more than the interest that would have been payable under the agreement for a period equal to the difference between (aa) three months; and (bb) the period of notice of settlement if any, given by the consumer.
If the consumer is unable to settle an account in full at once, he or she may also make advance payments to the credit agreement, thus reducing the balance faster than what would have ordinarily been the case.
126. Early payments and crediting of payments.
(1) At any time, without notice or penalty, a consumer may prepay any amount owed to a credit provider under a credit agreement.
(2) A credit provider must accept any payment under a credit agreement when it is tendered, even if that is before the date on which the payment is due.
(3) A credit provider must credit each payment made under a credit agreement to the consumer as of the date of receipt of the payment, as follows
(a) Firstly, to satisfy any due or unpaid interest charges;
(b) secondly, to satisfy any due or unpaid fees or charges; and
(c) thirdly, to reduce the amount of the principal debt.
For a consumer to take advantage of the above sections of the National Credit Act, he or she must first be in a financial position to do so. Below are some general tips on how to manage a budget in order to get to the point of being able to settle one’s debt early in line with the above provisions.
1. Make time for your money
Diarize one day a month to work on your finances. Even if it means you have to spend an entire day to look at your finances, it will be the difference between financial independence and a life of enslavement to debt.
2. Track your spending
Keep a notebook and write down every expense, including the tip for the car guard, or the beggar at the traffic light. This will be arduous and very difficult at first, but it will help you understand where you spend unnecessarily. And most importantly, you can then cut out these expenses, e.g. you spend 30 to 40 Rand a day on buying a sandwich at the office cafeteria. That’s the cost of four loaves of bread. A cheaper option would be to take lunch from home.
3. SAVE, SAVE, SAVE A PENNY SAVED IS A PENNY EARNED!!
Using your records of what you spend, write everything on one list. Highlight all expenses that you wish to eliminate. Add up those items that you think will be easiest to eliminate and prioritize that cash for savings. Open a separate savings account and have the money deposited into that account via direct debit. This will come in handy in case of an emergency. And if there is no emergency you just keep saving, which will come in handy in the long run.
4. Try to live cash
Once a week, do shopping list of household items needed for that week. Draw enough cash to pay for these items. Exercise the discipline that this cash is ALL you have for the week and do not withdraw any more at all. If an expense was not planned for on the weekly expenses list, then it must be deferred.
5. Change your habits
Alcohol, tobacco, sweets and eating out are expensive. Cut these out and you will see your bills drop dramatically and your health will also improve.
6. Involve the family
Make sure everyone in the family is involved in the exercise. If one member keeps spending without discipline it will defeat the purpose of your budget. Have a weekly family meeting to discuss, review and improve the spending habits of each family member. If you do this now with your children, they will grow up to be financially responsible and independent.
7. Eliminate debt:
1. List all debts with minimum monthly payments, interest rates and amounts owing
2. Order them either by amount owing or highest interest rate.
3. Note the minimum payments due on each debt and budget any extra cash to be added to the debt at the top of the list. It is usually easier to list the lowest debt first and aim to pay it off first.
4. Continue to pay all debts, while adding the extra cash on the first debt until the first debt is paid off.
5. Once the first debt is paid off, add all money you’ve been paying for that first debt (i.e. first debt minimum payment plus extra cash) to the second debt.
6. Continue this process until all your debt is paid off.
For example: Debt A = 100 per month, Debt B = 100 per month, Debt C = 100 per month. Thus, if you follow the model, Debt A may receive 120 per month, and be paid off in 10 months instead of 12. This means that debt B receives 220 per month as of month 11 and will be paid off in 6 months instead of 12. Then Debt C starts to receive more and its term is also reduced drastically. The key to success is Discipline.
And do NOT take on more debt.
8. Be flexible
Life happens! Going over budget is easy and sometimes cannot be avoided. Remember that you are on a journey and if you do your best to stick to the plan you will reach your destination no matter how many turns it takes. If you break the budget one month, you will stick to it the next.
What about Debt Consolidation?
Another option to reduce debt is debt consolidation. This means taking on one single loan that can pay off all existing debts. The borrower is then left with only one single payment to make per month to pay off the debt consolidation loan.
GOOD: The best thing about debt consolidation is that it is easier to avoid late fees, extra charges, and the bad credit that will inevitably result when you can’t afford to pay regular bills.
BAD: Interest rates on debt consolidation loans are usually very high. They also have longer repayment periods and as a result over time, one pays a lot more in total than one would have done without debt consolidation. Debt consolidation loans are also difficult to get, since highly indebted consumers are regarded as high risk and most will be forced to provide assets as security.