Free yourself from debt slavery - how to stop paying interest, bank charges and collection costs
It’s the beginning of a New Year, and it is time to get your financial affairs in order. The first thing you should do is make a list of all debts you owe. Then do the following: separate them into two classes of debt (I have designated these A-Class and B-Class debt).
A-Class debt is your most important debt, primarily your mortgage and your car since you need a roof over your head, and a car so you can get to work. All other debt is hereafter classified as B-Class (less important). This includes your store accounts, your overdraft, credit cards and others.
Many people I deal with find they simply cannot afford to pay all their debts. If they do, they have nothing left at the end of the month, and will spend the rest of their lives in debt slavery. So make a decision now to get out of debt slavery.
Here’s my 12-point plan to free yourself from debt slavery.
- Spend your income in strict order of priority (which means pay your most important debt first, being your car and mortgage bond, so you can continue to live with a roof over your head, and drive to work).
- Stop paying B-Class (unaffordable) debt! That's right. Just stop paying debts that you cannot afford. I get plenty schtick for repeatedly saying this, since people think I am encouraging delinquency. I am not. I am simply stating what is allowed by law (Magistrate's Court Act, Section 65D) and what is common sense. So stop paying unaffordable debt. There, I said it again.
- There are some laws on the statute books which most debtors don't know about: one of these laws is that they can't jail you for failure to repay debt anymore. See Coetzee v SA Government 1995 (4) SA 631 (CC). Another law is Section 103(5) of the National Credit Act which says that the amount claimable under a credit agreement (capital, interest, bank charges and all collection costs included) are limited to the sum outstanding at date of first default + 100% even if you never pay a cent thereafter.
- This law as you would expect was attacked by the banks but upheld in Nedbank Ltd and Others v The National Credit Regulator and Another 2011 (3) SA 581 (SCA): Paragraph  Section 103(5) of the NCA was intended to provide some redress for borrowers of expensive credit. It includes within its ambit not only interest but also the other costs of credit which are set out in s 101(1)(b) to (g). Kelly-Louw correctly summarised one of the differences brought about by its introduction:
“From this exposition it is apparent that the vital difference between the common-law and the statutory in duplum rules lies in the fact that under the common-law rule it is only interest (contractual and default) that ceases to run if it equals the outstanding capital amount. By contrast, under the statutory rule, all the amounts – such as the initiation fees, service fees, interest (contractual and default), costs of any credit insurance, default administration charges, and collection costs – cease to run if they combine to exceed the outstanding principal debt. Clearly the statutory in duplum rule offers better consumer protection than its common-law counterpart. However, the statutory rule has worsened the position of credit providers.” (The in duplum rule is an ancient common law principle now written into the National Credit Act which states that a creditor cannot claim more than double the outstanding debt from the date of first default).
- In plain terms, the above means that, as soon as you a) stop paying or b) don't pay an instalment as required under your agreement, you have effectively defaulted. The maximum sum that can be recovered from you, whether or not you make payments after date of first default, is limited to the sum outstanding at the time of first default plus 100% (and this includes interest, bank charges and collection costs). The account balance then ceases to run (ie. stops) by mere operation of the law. Every payment that you make after date of first default, whether you know it or not, reduces the amount that you owe to the creditor. Creditors will huff and bluff and threaten to take you to court, and then try to complicate matters, but the above are facts. Once you default on a loan, you are protected by law to paying no more than the outstanding balance from the date of default plus 100% (ie. double the outstanding amount). If, after defaulting, you start making payments again, any payment will reduce this outstanding balance on a straight line basis to zero (yes, zero, zilch, aziko).
- Even if you make no further payment at all on the account after date of first default the creditor cannot recover more from you than this limit by law despite any agreement to the contrary.
- Let’s explain this by way of illustration: you borrow R10,000. You pay back R1,000 and then a month later (let’s say 7 January 2017) default, leaving a balance of owed of R9,000. This is the date of first default. The maximum that the creditor can recover from you is R18,000 (R9,000 x 2).
- Interest, bank charges and collection commission can now only run to this limit and must then cease notwithstanding the fact that the creditor may have got judgment against you for payment of the sum of R20,000 plus further interest costs at some future date.
- The date of first default determines the limit that can be collected from you under the statutory law stated above.
- You have to start living in accordance with an order of priority making provision for future monthly necessary expenses!
- If you are unable to provide for all your monthly commitments, you are forced to put your and your family's needs first before B-Creditor (Unaffordable) debt! The law makes this mandatory (see Section 65D(4) of the Magistrates' Court Act).
- The competition for money to pay personal monthly expenses and repay debt is getting worse and worse! You have to make a decision to live in order of priority sooner or later whether you like it or not!
Become a DiyDebtMan! It's cheaper, safer and best! For more information go to DiyDebt at www.debtadmin.co.za.
I wish you all a prosperous and debt-free 2017!
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