One of the signs that you might have been granted reckless credit is that you struggle to meet your monthly debt repayments. If you have a healthy budget, you should not be spending more than about 40% of your income on debt repayments.
However, before you blame reckless credit, make sure that your budget is properly balanced and realistic. We recommend a 35-25-35 split: 35% on household expenditure, 25% on financial services and 35% on debt repayments. This leaves 5% which we recommend for emergency savings.
If your budget is balanced and your monthly debt repayments are still consuming a major portion of your income, check for reckless credit. When you apply for credit, the credit provider must, by law, assess your income to evaluate your financial position. If he failed to do this, regardless of what the result could have been, then the credit he granted is reckless.
Even if a credit provider did conduct an assessment, the credit he granted could be considered reckless if he realised that you did not fully understand the risks, costs or obligations of that credit because of the kind of information you provided. It is fairly obvious from the information consumers provide whether they understand a credit provider's explanations or not.
Credit can also be considered reckless if the credit provider realised that even if you are not over-indebted when you apply for credit, you will become so if he grants the credit for which you are applying. Any accredited credit provider will know this from the assessment he conducts."
The final instance of reckless credit is credit that is granted once a consumer has already entered into a consolidation agreement to re-arrange and repay his debts.
The National Credit Act (NCA) has provided for qualified and accredited debt counsellors to assist consumers who are caught in the debt trap. If you think that you have been granted reckless credit, you should seek help from a reputable debt counsellor for an assessment of your situation.
The debt counsellor will ask a number of pertinent questions that will address every step of your previous applications for credit and it will be essential to answer as accurately and comprehensively as possible if you wish to resolve your situation.
The debt counsellor will also consult your credit provider to obtain necessary information about the credit agreement to complement the details you supply. If the credit provider had the necessary and legally required policies and procedures to ensure that reckless credit is not granted, but these were not properly followed, then he might well agree to cancel that debt in full.
If the debt counsellor determines that you are over-indebted due to reckless credit he can make a proposal to the magistrate's court to issue one or both of the following orders. The first is that one or more of your obligations should be declared reckless credit. The second is that one or more of those obligations should be re-arranged.
The court may decide to suspend the force and effect of the reckless credit agreement until a specific date, and to re-arrange your debt repayments. This means that you will not be required to make any further payments on that particular agreement and that the credit provider may not be allowed to add any interest while the suspension is in effect. Only when the suspension ends will you be required to continue your repayment of that debt.
Slot emphasises that even if the court does grant a suspension of a credit agreement because it is considered reckless, this does not mean that you no longer have to pay that debt off. The court will determine a date when the suspension is lifted and from that date, you will once again be required to pay instalments until such time as the debt is repaid.
Declaration of reckless credit is intended to assist consumers to restructure their debt repayments by consulting debt counsellors who can facilitate agreements with creditors to arrange a less onerous manner of repaying debt and to ensure that unscrupulous credit providers cannot take advantage of uninformed consumers. It should also serve as a salutary lesson to those who have been subject to it, to control and manage their budgets more effectively and avoid the debt trap.
