In April 2017, Derrick approached the Financial Wellness Coach from Interface, Promise, for a meeting. He felt that he was drowning in debt and his situation was deteriorating.
Derrick is a single father to a 5 year old girl. Fatherhood being an important part of Derrick’s identity, he has always aimed to provide the best for his daughter. Added to this, he also has extended family responsibilities that require him to support his family back at home, and has consistently provided them with money towards their welfare since he commenced working. The quest for excellence as a son to his parents and extended family, as well as responsibilities towards his daughter contributed to Derrick seeking loans from banks to meet his commitments. With time, his salary was not enough to cater for his financial responsibilities as with increasing loan balances, the instalments required also ballooned. This meant that he was forced to use credit for his clothing, with increased balances owing to 3 store cards. At the time of his appointment with Promise, Derrick had all but maxed out on all his store cards.
On assessment, Promise concluded that Derrick was spending 57% of his income on debt repayments. With his living expenses (rent, groceries, school fees, family support) requiring 73% of his income on their own, it was no wonder Derrick had started defaulting on his debt repayments. Promise therefore recommended debt counselling as a solution for the client’s situation.
Derrick completed a debt counselling application form towards the end of April 2017. Under debt counselling, we have reduced the client’s debt repayments by 76%. Whereas he was spending 57% of his net income on debt repayments, this has significantly reduced to a mere 13%. His interest rates, which averaged 26% before debt counselling, were reduced to less than 1% (0.83% on average). On 2 bank loans where his interest rate was 31.7%, the rates fell to 0.92% annually. Bank charges were included in his instalments for 2 of his personal loans, totaling R125,40 monthly. These fell off under debt counselling, translating to a R1,504.80 annually for the duration of the debt repayment.
In addition to the financial savings the client has had, the client no longer receives calls from the creditors’ collections departments. This is because under debt counselling, all creditors’ communication is done through the debt counselling company, and not the individual.
Testament to Derrick’s commitment to get out of debt, he has been paying religiously towards debt counselling since May 2017. This shows that his defaulting was not resulting from lack of willingness to repay his debt, but a lack of affordability.
Debt counselling has meant that Derrick is once again able to use the bulk of his salary towards his living expenses, his personal development and his daughter’s education. He is also able to comfortably take on the responsibility of supporting his extended family more comfortably once more. Because debt counselling takes him out of the credit market for the duration of the period when he will be paying his debt back, he has learnt to live on a cash budget for all his expenditure.