John Vaughan (Financial Advisor) @ Lucid Living

With the festive season over, borrowing wisely in the months ahead can mean the difference between another financially stressful year or building a solid financial footing for your family’s future.
It doesn’t just happen, you need a clear plan of action to ensure that you don’t slip into over-indebtedness.

Start with revising your budget, cutting back on unnecessary spending, and looking for better deals on everything from your car insurance to your cellphone, is a good way to make sure that you are able to make a dent in your debt.

Then set clear financial goals and develope the discipline to stick to them. Good financial planning and management involves not only responsible spending, making provision for emergencies and savings but also ensuring manageable debt levels and a clean credit record.

Most financial advisor’s will tell you, to remain in a healthy financial position, you shouldn’t be spending more than 35% of your disposable income paying off debt. Yet the reality is that South Africans are spending 76% of their income on paying off debts.

Putting plans in place to get your debt down to a reasonable level is a crucial starting point.

Tips To Keep Your Debt In-Check:

1) Borrow to meet your needs not wants.

Borrowing to fund your children’s education or a home loan can be a good thing, but borrowing to pay off other debt or to fund luxuries such as holidays or designer clothing can condemn you to a lifetime of debt. Only borrow for what you really need.

2) Plan.

Create a monthly budget and stick to it. Work out how much income your family earns and what your total expenses are each month. Will you be able to pay for your new debt once you’ve covered all your expenses? You should also plan for unexpected costs such as if one of your family members is retrenched.

Plan the repayments before you apply for a new loan. Also take into consideration the interest and other charges as well as how this will affect your ability to meet the monthly repayments.

3) Understand the terms of a loan.

The principal amount is the amount that you have borrowed and on which you will pay interest. Shop around for the best interest rate and understand how much you will be paying back in interest each month and for how long. Also look for hidden costs, such as initiation fees, service and administration fees.

4) Understand your legal obligations as well as the rights of the credit provider if you do not meet those obligations.

Make sure that you honestly disclose all the information required by the credit provider. Dishonesty may cause you to lose the protection offered by the National Credit Act. Keep your contact details up to date, respond to letters of demand, especially section 129.

5) Pay your debts on time.

Paying late will adversely affect your credit bureau record and your ability to take out credit in the future. If you think you cannot meet your monthly instalments, call your credit provider and try to re-arrange payments. If they don’t accommodate your request, get in touch with a debt counsellor. Do not wait until you skip payments, this leaves you with no options. In addition you end up paying more in interest rates and penalties.

6) Check your credit report regularly.

Don’t leave it until you apply for credit or a new job to find out that the information held by a credit bureau is incorrect. You have the right to challenge any incorrect information.

This can at the best of times be a arduous and time consuming process. Lucid Living are experts in clearing unfair blacklistings and improving your credit worthiness. Save your self the hassle and let Lucid take care of this for you.

Also get instant access to your credit report from Lucid Living now.

John Vaughan (Financial Advisor) @ Lucid Living

Although interest rates have come down over the past few years, an alarming number of consumers are still battling to pay off their debts. The National Credit Regulator (NCR) warns that of 19, 10 million credit-active consumers, 8, 83 million consumers had impaired records (“blacklisted”) as at the end of September 2011.  These are consumers that are three or more payments or months in arrears on their debt repayments.

“Before consumers sign credit agreements, they need to understand the cost of credit and the terms and conditions of different credit agreements,” advises the NCR.

Consumers should take into account all debt, including store and credit cards as well as personal loans and other commitments.  “Plan to pay off as much debt as possible before taking on more credit,” warns the NCR. “Most importantly, stick to and honour your credit agreement and repayments.”

Consumers must take responsibility for the amount of debt they take on.  “After taking all your debt into account, including your home loan, car repayments, store and credit cards, make sure you can really afford to take on extra debt,” adds the NCR.

According to the National Credit Act, before credit providers extend credit to consumers, they are required to conduct an affordability assessment to assess:

• the consumer’s general understanding and appreciation of the risks and costs of the proposed credit agreement;
• the rights and obligations of a consumer under the credit agreement;
• debt repayment history as a consumer under credit agreements (i.e. your credit report); and
• the consumer’s existing financial means, prospects and obligations.

“Under the NCA, it is your right as a consumer to be given a pre-agreement statement and quotation when seeking credit”, says the NCR.

“These will outline the terms and conditions of the proposed credit agreement and all costs involved such as cost of credit, interest, service fees, initiation fees, credit insurance if there is any, deposit required, number of instalments, date of first instalment, date of last instalment, etc”.

“This means that you will know what is expected of you prior to signing the credit agreement,” explains the NCR.  “You should be aware of the cost of credit and the terms and conditions of the credit agreement before signing the actual credit agreement so there shouldn’t be any surprises in future. If there is anything you don’t understand, seek assistance before you commit yourself.”

The NCR strongly advises consumers to investigate what interest rates will be charged, but also all other charges that will be added.  For example, when taking out an unsecured credit agreement which consists mainly of personal loans, the credit provider can charge maximum interest of up to 32.1%.

“However, as a consumer you can negotiate the interest when you get the pre-agreement statement and quotation. You can use these to shop around for better deals and remember to only borrow from a reputable credit provider”, cautions the NCR.

“Never sign a blank credit agreement as you won’t have control over other information added after you sign”, advises the NCR.

Eva Smith (Attorney) @ Lucid Living

If you are in a fix and can’t afford to keep up with your vehicle repayments, speak to a debt counsellor and avoid approaching third-party companies offering to help by taking over payments.
Nicholas Litton, head of risk at WesBank, says there has been a rise in the number of cases, where a business arranges to have the financing of a vehicle taken over by a third party, and is leaving more and more consumers in financial straits.

Usually found in the classified section of newspapers – under headlines such as “Blacklisted?” and “Can’t get finance?” – these  schemes offer to take over vehicle repayments.

“These adverts are directed at those consumers who are experiencing severe financial difficulties and who can no longer keep up with their vehicle repayments, or who are struggling to obtain finance through proper channels.

“The assistance the company provides is finding a ‘buyer’ who will take over the monthly vehicle repayments to the bank. This is an illegal business practice as the financial obligations of a consumer cannot be transferred without the knowledge and agreement of the bank,” says Litton.

He adds that when consumers contact the advertiser they are told that the practice is legal and that they are operating with the permission of the banks.

“This is not true, as no bank will authorise these business practices to operate on their behalf. The client will also be informed that the business practice will pay the arrears on the account or pay a deposit for the vehicle.”

He says the consumer signs an agreement regarding the “take-over” of the asset and the vehicle is then given to the new “buyer”, who is then responsible for paying the monthly vehicle repayments.

“In practice, however, the vehicle repayments are often not made to the bank and the account will be left in arrears, leaving the original owner without a vehicle and still being held responsible for the remaining debt on the account.

“The new buyer who contacts the business practice to purchase a vehicle will be asked to make instalments into a private bank account – which are often not passed on to the bank – or sometimes directly to the bank through manual payments. They are also often required to make a large deposit on the vehicle before it is given to them.

“This private arrangement is illegal and even if the buyer does make the vehicle repayments to the bank, they will not have legally purchased the vehicle. It remains the property of the bank until the account has been paid in full and even then, the buyer does not have the right to retain the asset,” he says.

“It is critical that consumers do not contact such companies as at best they may lose their vehicle. At worst they could be left paying off a huge debt on a car they no longer have.”

Lucid Living has assisted hundreds of “blacklisted” consumers, to lawfully qualify for vehicle and home finance with banks. If you cannot access finance, because you are “blacklisted” or have a poor credit rating, contact Lucid’s experienced credit counsellors (010 590 5617) who will assist you to clear your name and improve your credit worthiness.

John Vaughan (Financial Advisor) @ Lucid Living

1. No bank is entitled in any way to force you into an expensive credit life assurance product, even by inferring that the loan will not be available if you do not buy its product.
Banks are allowed to make credit life assurance a condition of granting a loan, but they may not prescribe which  credit life assurance you may use.

However, the banks may dictate the type of policy that may be ceded. For example, the banks may, and mostly do, insist that your credit life assurance policy contains cover in case you are retrenched.

You are entitled to, and should shop around for, the cheapest option. Individually risk-rated  credit life assurance may be cheaper, even if you suffer from health problems or are elderly, because the premiums for bank-sold  credit life assurance linked to unsecured short-term personal loans are excessively expensive.

2. You may cede an existing life assurance policy to cover the loan should you die or become disabled and are unable to work before the loan is repaid, but there will probably also be a requirement that it has a retrenchment benefit.

3. If you use bank-provided  credit life assurance linked to an unsecured short-term loan, always pay the premium separately. Do not allow or accept an option where the premium is added to the loan amount, because, if you do, you will pay interest on the premium.

What the Bank’s Credit Life Insurance will cost you

The total premium for  credit life assurance from Nedbank to cover a loan of R100 000 over two years is R10 558 (R439.95 a month), which equates to 10.6 percent of the value of the loan.

The premium for the individually risk-rated credit life assurance product from First National Bank (FNB) for a man aged 40 for cover of R1 million is R193 a month, with the premium guaranteed for five years.

So the FNB individual life policy costs you R1 a month for every R5 181 of cover, whereas the Nedbank  credit life assurance attached to its personal loans costs R1 a month for every R24 of cover.

In other words, 10 times the amount of cover on the FNB policy costs a fraction of the Nedbank  credit life assurance cover for R100 000. But roughly the same comparison can be made with the  credit life assurance sold by FNB to borrowers with unsecured personal loans.

The situation is worsened by the fact that  credit life assurance sold by the banks pays out benefits equal to the reducing outstanding loan amount. This pushes the difference between the cost of the premiums on an individual policy and those on the  credit life assurance polices to excessive levels.

The benefits of the FNB product are level for the full period of the assurance, so if you die 18 months into the 24-month loan, your beneficiaries will still receive the full R1 million.

Eva Smith (Attorney) @ Lucid Living

Beware the add-ons if you take out an unsecured short-term personal loan from a bank: exorbitant interest rates – in the region of 30 percent – administration charges and credit life assurance premiums could see your paying back an additional 60 percent-plus on the loan.

The credit life assurance – which covers the loan in the event of death, disability or retrenchment – into which the banks will steer you is about the most expensive on offer.

The premium on the credit life assurance may also be added to your loan amount, with the result that you will be charged further interest.

Ordinary life assurance, on average, costs less than a quarter of the credit life assurance sold by the banks to cover unsecured
personal loans.

The credit life assurance sold by the banks to cover unsecured personal loans is provided by life companies that are owned either by
the banks or by companies associated with the banks.

The Financial Services Board (FSB), the National Treasury and the National Credit Regulator are about to launch an investigation int credit life assurance in general, and the investigation will include the banks’ assurance products.

Jonathan Dixon, the FSB’s deputy executive in charge of insurance, says the FSB is concerned about the terms and conditions under which the banks force borrowers to take out high-cost short-term credit life assurance.

The chances of claiming for life and disability are far lower for credit life assurance, because most borrowers are younger and not in the high death claim bracket, and this increases the potential profits for banks or associated companies.

The FSB’s investigation into the credit life assurance industry will include a survey that raises questions about assurance products linked to bank products, Dixon says.

The banks appear to be doing everything possible to prevent borrowers from taking out cheaper credit life assurance options – for
example:

• Nedbank financial advisers have told Personal Finance that they have been threatened with disciplinary action if they try to sell more affordable credit life assurance to people who take out a personal loan.
• Banks are making it difficult for borrowers to cede existing credit life assurance policies or new policies by insisting that the policies have a a retrenchment benefit. Very few individually underwritten policies have retrenchment benefits.

The nominal premiums on the policies sold in tandem with personal loans exceed 10 percent of the loan amount, and the premiums are considerably higher than those on normal underwritten credit life assurance.

Banks, in their documentation, inform clients that they can obtain credit life assurance elsewhere, but, on the basis of complaints
received by the FSB, this is often not pointed out verbally. The insinuation often is that in order to qualify for the loan, clients have to buy the “bank’s” credit life assurance.

“As a result of these explotative tactics, Lucid Living has partnered with an insurer to offer our clients one of the “safest” and cheapest credit life assurance products on the market,” says Adv Kate Thambiran, MD of Lucid Living. “Lucid AccessLife allows you to consolidate several credit agreements under a single policy; decrease or increase your level of cover as and when credit facilities are paid off or new ones are taken up; and the single policy can be used as a replacement policy on your existing and new credit agreements,”  Thambiran points out.

Tristan Powys (Credit Counsellor) @ Lucid Living

You already know that late payments or a judgment can damage your credit score. But did you realize that otherwise insignificant financial decisions can also cause your credit score to plummet? Keep your credit report pristine by avoiding these potentially destructive moves whenever possible.

1. Opening a department store card
It may seem like a great idea when the cashier suggests it: open a store credit card, receive an instant discount on your purchase. But it often pays to decline the card in spite of the discount, because the savings may not be worth what the transaction will do to your credit score. New card applications initiate a hard inquiry on your credit report, which can lead to a drop in points.

2. Closing a credit card account
If you’ve scrimped and struggled to pay off a card, your initial reaction may be to cut up the plastic and close the account. Resist the urge. Various factors are taken into account when calculating your creditworthiness, and 15% of your credit score is determined by the length of your credit history. By closing an account – especially an older one – you shorten your credit history. The more established accounts you have, the higher your credit score.

Credit card companies also look at how much of your available credit you are using, which is referred to as your credit utilization rate. They like to see 35% or less of your credit in use at any one time. Paying off a credit card and leaving it open improves your utilization score, but closing it could do just the opposite.

3. Keeping a zero balance
Paying a credit card off completely seems like it should do wonders for your credit, but it could be better for your credit score to leave a small balance on the card. When a small amount is owed, the remaining credit on your card is factored into your credit utilization ratios, whereas cards with no balance don’t count. So oddly, your credit score can actually drop when you bring a card down to zero.

4. Purchasing a cell phone contract
Many of today’s cellular phone providers check credit history to make sure that you pay your bills. But doing this constitutes another hard inquiry that is likely to ding your credit score by a few points. Shopping around for the best cell phone deals is a good thing – just make sure that every provider isn’t checking your credit report.

5. Buying car insurance
Again, most major car-insurance companies check your credit report when you apply. While a good credit score can earn you lower rates on insurance, make sure the savings you receive from the new policy outweighs the potential hit to your credit score.

6. Negotiating a lower credit limit
Negotiating a lower credit limit on your credit card may seem like a smart move for cutting expenses and boosting your savings account, but by reducing your credit limit, it could affect your credit utilization ratio and lead to a drop in credit score.

7. Keeping a high balance
If they didn’t want you to use a lot of credit, why did they make your card limit so high? In reality, the amount you owe on your accounts determines about 30% of your credit score. Lenders consider those who use a low percentage of their credit – such as 35% or less – to be a low credit risk. Such individuals get a higher credit score as a result. Spending 80 to 90% of your available credit limit negatively affects your credit score for the opposite reason.

Naturally, some of these transactions are easier to avoid than others. But by knowing the threat they pose to your credit score, you can have a better understanding of when these moves really make sense.

Eva Smith (Attorney) @ Lucid Living

A man who failed to set aside a default judgment after he could not honour the terms of his credit agreement with a bank has brought a challenge in the Constitutional Court, asking it to interpret a section in the National Credit Act (NCA) dealing with the serving of notice on a defaulter.

While the bank sent the notice by registered post to the defaulter, he did not receive it. The question when the matter was heard in the high court was whether the mere sending of the notice by the bank to the defaulter constituted compliance with the provisions of the NCA.

Section 129 of the NCA sets out steps which the credit provider should take if a consumer defaults on repayment under a credit agreement. These include notifying the consumer of the default, and proposing the consumer refer the credit agreement to a debt counsellor for the parties to resolve any dispute or agree on a plan to bring the payments up to date. The section also states the credit provider may not commence any legal proceedings to enforce the agreement before first giving notice to the consumer.

The high court found that it was not a requirement that the notice sent by the credit provider should come to the attention of the consumer. But the defaulter argued that the exercise of the consumer’s rights triggered by receipt of the notice, such as referring the credit agreement to a debt counsellor, would be of no effect if the consumer did not receive the notice.

Mashilo Sebola approached the South Gauteng High Court this year to rescind a default judgment granted against him in favour of Standard Bank in September 2009.

Mr Sebola and Ms Sebola conceded that they had failed to comply with their obligations in terms of the agreement in that they failed to make payments. The only defence they persisted with was that the bank had failed to comply with the debt enforcement procedures provided for in sections 129 and 130 of the NCA.

There was no dispute that the bank had sent the requisite notice by registered post to the address chosen as the address of service by Mr Sebola and Ms Sebola. But for reasons beyond the control of Mr and Ms Sebola, it was not received.

In a ruling refusing the rescission of the judgment in August this year, Judge Phillip Boruchowitz said the question at issue had been authoritatively settled. He said in a judgment passed by the Supreme Court of Appeal last year, the court held that it was sufficient to establish compliance if there was delivery of the notice in the manner chosen by the consumer, and that actual receipt was the consumer’s responsibility. Judge Boruchowitz said the high court could not depart from the decision of the Supreme Court of Appeal and was bound by it.

In his application to the Constitutional Court, Mr Sebola said he was aggrieved by the outcome and reasoning of the high court and disagreed with the findings of the Supreme Court of Appeal related to the matter.

The chief justice has set down the matter for hearing in February 2012.

We are eagerly awaiting the outcome of this decision, as it will have dramatic implications on the manner in which creditors proceed with enforcement action. If the Constitutional Court does find in favor of the applicant, it will certainly strengthen the “consumer rights” dimension of the NCA.

John Vaughan (Financial Advisor) @ Lucid Living

As at end of September 2011, credit bureaus had records for 19.10 million credit-active consumers, an increase of 1.4% over the 18.84 million reported for the quarter ended June 2011. Consumers classified in good standing increased by 232 000, a 0.5% increase in proportion to the total number of credit-active consumers. The number of consumers with impaired records increased by 24 000 to 8.83 million.

The credit bureau statistics indicate that consumer performance is holding steady, the acting CEO of the National Credit Regulator, Nomsa Motshegare said.

Enquiries made by debt collection agencies, to the credit bureau increased by 44.6% quarter-on-quarter.

Consumers received 100 885 credit reports during the September 2011 quarter. Of the total credit reports issued, 81.6% (82 348) were issued without charge and the remaining 18.4% (18 537) were issued with charge.

There were 7070 disputes lodged on information held on consumer credit records for the quarter ended September 2011, which was an increase of 9.8% quarter-on-quarter and a decrease of 68.7% year-on-year. More disputes were resolved in favour of the complainant (5652) when compared to disputes where the record remained the same (1305). “This highlights the poor accuracy of information contained on credit reports,” advised Adv Kate Thambiran, MD of Lucid Living.

“To ensure that they are not declined credit, as a result of inaccurate and outdated information on their credit reports, we strongly advise consumers to regularly review their credit report.” “If errors are identified, we assist consumers to have the information corrected with all credit bureaus, in the most efficient manner,” continued Adv Thambiran.

Tristan Powys (Credit Counsellor) @ Lucid Living

Thanks to the 2008 housing market meltdown, getting a home loan these days can be tough. For potential homebuyers with a bad credit report, the process can be downright difficult.
Lenders, such as banks, use an applicant’s credit score to determine whether to grant a home loan and at what rates. Individuals with a credit score below 700 face having to make concessions in regard to their interest rate and home loan amount. But there are some steps would-be homeowners can take to quickly improve their credit score.

“You can begin impacting your credit score positively within 30 days,” says FICO (a leading credit score developer) spokesman Anthony Sprauve. “Paying bills on time, keeping low balances [on credit cards] and only opening new credit when you need it will positively impact your credit score.”

Industry experts recommend individuals first obtain a copy of their credit report to ensure there are no errors. If there are inaccuracies, get them corrected as soon as possible. GET YOUR CREDIT REPORT NOW.

“Always check your credit report at least once a year to help avoid any surprises and to make sure the reporting is accurate,” advises Rod Griffin, director of public education at Experian. For people looking to make a home purchase within the next year, Griffin recommends they check their credit report every three to six months to make sure nothing has changed.

Consistently paying bills on time will provide a nice boost to a credit score. According to Sprauve, a credit score is based on a person’s payment history–the longer bills are paid on time, the higher the credit score. “As you begin to change that history and the missed or late payments are farther in the rear view mirror, your credit score will improve,” says Sprauve.

Indeed, according to Griffin, the more recent the missed payment, the more significant the impact on your credit score.

People looking for a quick credit score boost should not close a credit card account even if they have paid off the entire balance. “It’s better to keep older accounts open to show payment history,” says Sprauve.

Keep in mind that any instability in a buyer’s credit history could hurt a credit score, and in turn, increase the interest rate on a home loan. For instance, it’s not smart to open up a new credit card when trying to secure a home loan. Same goes for closing a credit card. “Stability is really important, which means not making a lot of changes when applying for a home loan,” says Griffin.

While these steps can help repair a damaged credit score, the time it takes to see the improvement varies. People with severe credit problems face a longer road to rehabilitate their credit report. According to Adv Kate Thambiran, MD of Lucid Living, people who have had only a few delinquencies on their credit report will typically recover in three to six months, but more serious problems can take about a year to repair.

Staff Writer @ Lucid Living

The decline in the number of civil judgments for debt shows household balance sheets are on the mend in South Africa, an Investec economist said on Friday.

However, a substantial slowing in economic activity would slow this trend.

Annabel Bishop of Investec Group Economics was commenting on Statistics SA’s finding of a 22.9 percent drop for civil judgments to individuals, year on year, for October.

This meant that 38 800 people were issued civil judgments on their debts, compared to 50 000 a year ago, she explained.

“The historical average is 53 000 individual civil judgments a month, with figures of 60 000 during the 2009 recession, so October’s monthly outcome indicates an improvement,” she said.