I don’t do debt counseling purely because I cannot charge someone who is already over indebted & I am not a debt counselor. But when one of my customers asked me to help his sister with her debts, I couldn’t refuse. The sister is a teacher and a single mother. Before I agreed, I asked if she had a copy of my book as I only work with people who are willing to help themselves and take responsibility for their money. When he said yes, she was actually reading the book and doing her best to apply the principles, I then phoned the sister and asked her to take a pen and a paper as I was about to list a very long list of items I wanted from her before our meeting. This was the statements of ALL the debts she had, 7 of them, her home loan statement, her salary slip, etc… I also had a lot of “homework” for her as she also had to prepare adequately for our meeting. As I went on and on with the questions and the staff I wanted from her, I sensed her discomfort. However, I pushed on. I explained to her that if I was going to be of any help, I needed full, complete and accurate information. When we met about 2 weeks later, she had most of the staff I needed from her. In a matter of minutes, I had put her staff on a spreadsheet and realized that between her personal loan, overdraft, credit card and clothing store accounts, she was indebted to a tune of close to R68 000. Her monthly debt repayment for the short term debt was close to R6000. Because she has a home, a car and still has to pay for water, electricity, food, transport, school fees, etc…, she just couldn’t cope any longer. She was entering dangerous territory where she was skipping or not paying some of her debts in full monthly. I worked out that it would take her at least 3 years to clear her short term debts and a lot of sacrifice – the mood in the room was very somber. Please refer to the Debt Cancellation Plan in the blog www.thuthuka-sa.co.za to find out exactly what I was doing and chapter 2 “ Manage Your Debts [or They will Manage You]”, Chapter 3 “ The Cost of Debt” and Chapter 4 “ What You Should Know if You are already in Debt Trouble” in the book From Debt to Riches: Steps to Financial Success.

I took a closer look at her home loan statement and her salary slip. I asked her when she had bought her home and what the purchase price was. The monthly bond repayments reflected on her salary slip did not tie up to the purchase price – she was paying at least R1000 more than what she should pay based on the purchase price. I pointed this out to her. She said “yes, I am paying more because I heard that if you pay more, you are helping yourself and you could end up paying your home sooner”. My mood lifted a little bit then I asked her the next question “ why are you having so many short term debts then? Short term debt is expensive. Why haven’t you  borrowed back the money you have paid into your home loan – especially because you have been paying more than you ought to?”. She replied “ I once tried to get money out of my home loan but they refused, they gave me a personal loan”. I was upset and pressed on “ What exactly did your bank say when you tried to borrow back the money you have repaid?” She said she couldn’t quite remember but the bank gave her a personal loan. That is how her debt trap started. A personal loan is expensive to you the borrower and profitable to the bank or credit provider. That is why banks are so eager to give their customers personal loans. I have seen people who are paying 32% on a personal loan and they don’t even know it or understand the implications. I asked how long she had been paying the extra R1000 into her home loan. Again she couldn’t remember but I pressed for an estimate. Based on the estimate, I worked out that she should have at least R96 000 in pre-payments. This money should be readily available to her without any questions from anyone. The bank should never have given her a personal loan or overdraft or a credit card – they should have given her at least the prepayments back without any questions. Since I couldn’t verify any of the information she had given me, I didn’t want to raise her hopes too high. I explained to her the concept of a prepayment, a refinance and a re-advance. She was getting caught in the semantics so I told her to go to her bank and tell them “ I have been paying R1000 more into my home loan account for the past 7 years or so and I want all of my money back. I don’t want any personal loans or overdrafts or credit cards”. I also warned her and told her NOT to agree to any consolidation loan or any offers of the bank settling her debts. She must demand that she be given her prepayments back and she must personally pay off all her short term debts and close her accounts. I couldn’t be more happy when she called me the next day. She actually had R106 000 in prepayments. To cut the long story short, she has paid off her credit card and cut it up, paid off her personal loan and paid off her overdraft. She also paid off her clothing store accounts and cut up all her store cards except just one.

As we speak, this teacher is now one of my customers. She is now bad debt free and is currently putting away R1500 monthly in unit trusts for her kids so that she doesn’t have to worry about their university fees. During her financial hard times, she had cancelled her life cover – I also gave her life cover as she cannot afford to be without cover especially because she is a parent and is still paying for her home.

My gripe with the teacher’s story is as follows:

• Had I not met her in time, she would have been another statistic – part of the 9 million South Africans that have an impaired credit record
• She would not have been able to save for the university education of her children
• The focus on short term profits by our banks is not helping our nation – many people are heavily indebted today because they have been duped into taking short term expensive debt when they could actually be extended a refinance or re-advance against their home loans. Please read pages 140 – 142 of the book From Debt to Riches to understand more about re-advance & a refinance on your home
• The absence of personal finance education in our schooling  is a leading factor to the high indebtedness of many people – then we nurse them back to financial health using debt counsellors. This over indebtedness is another industry on its own. The focus should be to provide financial education so you prevent over-indebtedness NOT to put people into debt then give them debt counsellors
• If a teacher with a degree can be sold a personal loan, credit card and an overdraft instead of being given her pre-payments, what are the chances of less educated people being treated fairly? Many bank tellers are matriculants who have been given some training to sell loans to customers. If we had the right education system, a teacher or any other professional should have more financial knowledge than a bank clerk and should dictate what they want when they go into a bank and refuse to be sold high interest, expensive loans
• Dare I say that maybe the reason why there is still NO personal finance education in our schools is that a few are profiting from the ignorance of many.

 If you have a home loan and you need money, your first port of call should be your home loan as it is the cheapest form of debt. Do NOT let anyone talk you into taking a personal loan, revolving credit, a credit card, an overdraft or any other short term debt. If they do, ask them to give you reasons in writing why you qualify for a personal loan yet you don’t qualify for a loan against your home. You have a right in terms of the National Credit Act to be given reasons, in writing, why an application for a loan is declined. I have personally been refused a loan against my property. Within a week of the decline, I would get a call from a personal loan salesperson in the same bank offering me a personal loan. I asked the person why he thought I would want an expensive loan and why they were so eager to give me a personal loan when they just refused a re-advance against my home. The response I get is always gibberish.

 Do yourself a favour, arm yourself with as much knowledge as possible. Don’t let anyone have an upper- hand over you just because you are not a finance person or you don’t have time to read. Even if the school curriculum was to be changed to include personal finance education – I can tell you now it will not be worth the paper it is written on. Read and empower yourself. Knowledge is not just power, it is wealth. I see far too many people like the teacher above, heavily indebted because of their lack of knowledge. Do not let your ignorance be someone else’s profit

Why I do NOT consult individuals who are heavily indebted

I feel I must clarify why I don’t do individual debt counselling as I often get emails and requests from people who need help getting out of debt

• I am not a debt counsellor
• I cannot charge someone who is already over-indebted and even if I could, they would not be able to pay
• I have written enough articles on debt management and the first 5 chapters of the book From Debt to Riches give enough information to enable the reader to apply the information and get out of debt.
• I have people who have read the book and have shared with me how they are using the book to get out of debt. Some are already out of debt as we speak and are now investing their money. So in essence, the book is a Self-Help guide
• Some of the people who are over indebted are not ready to get out of debt. They say they want to be debt free but they are not willing to give up anything or sacrifice anything to get out of debt. This is like saying you want to lose weight but you also want to continue to eat badly and you don’t want to do any physical exercise. Getting out of debt takes discipline and a willingness to give up something. When you are ready to get out of debt, you will buy the book and read it and apply the principles to get yourself out of debt
• I feel sad when people write to me seeking advice about their debt but I find that they have never read the book. They want a quick fix to their problems. Time is money. If you are not prepared to buy the book and read it and help      yourself, then you are clearly not ready to get out of debt & to improve your financial position
• I do group “debt counseling” i.e. I talk about debt management to groups of people when I am invited to companies, churches, women’s groups, etc…

The book is available at CNA & Exclusives bookshops at R134. Invite Phumelele to speak to your employees about all things money, email phumelele@thuthuka-sa.co.za

Warm regards

Phume