It is evident that South Africans have a culture of spending as opposed to saving and living from paycheck to paycheck above their financial means and with the aid of credit. So much so that a number of South Africans rely on credit in order to make ends meet. In fact, according to the National Credit Regulator, in 2011 unsecured lending has grown by around 60% since early 2010, and now comprises 25% of all credit granted. This unsecured lending is far more expensive than asset-based lending and exorbitant interest rates are offered to South Africans with poor credit profiles that would ordinarily be rejected by the banks.

The vast majority of South Africans do not fully understand the consequences of defaulting on a credit facility. A study of financial literacy across nine countries found that South Africa had the lowest understanding of compound interest, with only 35% of men and 32% of woman correctly answering a basic question on the subject.

One of the important implications of the National Credit Act is that consumers must be informed fully of the consequences of entering into a credit agreement. It is important that financial and service providers ensure that consumers fully understand the concepts and terms of the agreement. The NCA legislation has been very positive for the South African consumer as it forces credit providers to ensure that the lender can afford the repayments of the debt. This avoids reckless lending that puts uneducated consumers into heavy debt.

Financial institutions, such as banks carefully assess and select more favourable consumers when granting credit. There are certain risk factors that the financial institutions avoid, and by doing so reject credit applications. The credit profile of an individual has a direct impact on the type of credit made available to them. Low interest, asset-based credit offered by the traditional banks is only offered to individuals with clean credit profiles. A poor credit profile will result in either very expensive or no credit being made available to the individual.

Some of these risk factors include, but are not limited to certain adverse credit information which is recorded on a consumer's credit profile. Financial institutions and service providers provide the credit bureaus with consumer's monthly payment behaviours. Every time a consumer defaults on a payment, this information is recorded at the credit bureaus, and is used as a mechanism in which potential credit providers can determine the risk factor of a consumer.

Many consumers do not realise that when a monthly payment is made a few days later than the agreed upon date, it is considered to be a default. This information is therefore negatively recorded at the credit bureaus.

In addition to payment profiles, more severe adverse information is also recorded at the credit bureaus. This includes information such as enforcement actions (more commonly known as default listings), and default judgment listings. When a consumer neglects to pay a debt owing, the credit or service provider has various options available according to the law in order to try and recover those bad debts. If a credit or service provider utilises any of these options, the result will be that the negative information will be recorded on that consumer's credit profile. In such a circumstance, it is highly unlikely that credit will be granted to that consumer.

There are however ways and means to update and amend negative credit information. The first step is to manage your finances in a way that allows you to pay back any outstanding debts, and thereafter deal with the adverse information in the correct manner. Attorneys, such as Jenna Moritz Attorneys (JMA), are available to assist in clearing and managing the adverse credit information, and thereby remove default judgments.

It is vital however that consumers maintain their monthly instalments, and keep up to date with their payments terms. Failure to do so results in negative consequences, which often take time to remedy.

* Default listings cannot be removed until the 2 year data retention period expires. During this time, Jenna Moritz Attorneys can assist in ensuring that your default listing is updated so that it will reflect a "paid in full" status. This is better than leaving the default to reflect as 'Bad debt written off' or any other negative notation, but is not as good as removing the default entirely.

** Judgments can either be granted in the Magistrates Court, or in the High Court.
Provided that the judgment debt has been settled, Jenna Moritz Attorneys can easily assist in having a Magistrates Court judgment rescinded. Once a judgment has been rescinded, it will have the effect of being permanently removed from your credit profile. In order to rescind a judgment, you are required to make an application to court to request that the judgment be rescinded. Jenna Moritz Attorneys assists through the entire application process, including the drafting of all necessary documentation, attendance at court and obtaining the vital Court order which confirms that that the rescission has been granted. You will not even be required to attend court, because Jenna Moritz Attorneys will do all of this on your behalf.

High court judgments are more difficult to rescind, however once again, Jenna Moritz Attorneys will guide you through the entire process with the intention of having the judgment rescinded.

Debt Counselling was introduced to provide relief to consumers who are over indebted. It can be summarised as a procedure whereby a consumer who can no longer afford to meet all their monthly debt obligations applies to be placed under debt review with a debt counsellor. The counsellor who will then negotiate with the consumers existing creditors for reduced monthly repayments to satisfy their credit agreements.

A debt counsellor will calculate a monthly amount which consumers can afford, after deducting all budgeted basic living expenses. This means that a debt counsellor will establish your monthly income, deduct your living expenses, and the balance will be used to satisfy your debts. As a part of debt counselling, you pay a monthly amount to your debt counsellor, who will then pay over an agreed amount to all of your creditors.

The main criteria is that you must have an income in order for your debt counsellor to make a reasonable proposal to your creditors.

Once you have successfully applied for debt counselling, your debt counsellor will send notice to all of your creditors of your status, and will also pre-arrange with your creditors a monthly amount (less than the original instalment) to be paid over to start settling your debts. Basic living expenses get priority before making provision for credit repayments. Debt counselling provides you with more breathing space without getting into trouble with your creditors for paying less than the original instalment amount.

Whilst under debt counselling, creditors may not take legal action against you for the repayment of your debts.

As soon as you have settled all of your obligations under debt counselling, your debt counsellor will issue a clearance certificate, indicating that you are now rehabilitated. This will ensure that the debt review status is removed from your credit profile, allowing access to credit again.

By Jenna Moritz, 2 July 2012