Guiding consumers since 2009

Auctioning your home might not solve your debt problems

By Staff Writer

Auctioning your home might not solve your debt problems

Cash-strapped South African's who auction off their homes in an attempt to settle their debts could still find themselves with financial problems if the house goes under the hammer for less than the market value, warns independent debt-counsellor DebtBusters.co.za.

The warning comes as figures show that more houses are being sold at auction by owners attempting to ward-off repossession by their banks, with some auction houses even promoting the scheme as a ‘recovery' solution for over-indebted people.

DebtBusters.co.za says that homeowners should talk to their bank and seek independent advice from a debt counsellor before they consider selling, and even then they first sell their homes on the open market because auctioned properties usually sell for a lot less than their market worth.

Luke Hirst, MD of debt counselling experts www.debtbusters.co.za , says "Over indebted people really need to evaluate the merits of the debt counselling process before they consider auctioning off their homes in the current climate."

If you are struggling with bills you cannot pay then you should consider debt management. If you are up to date with your payments, but need to tame your debts, then debt consolidation is a good option if you are a home owner.

Paul Beadle, MD of www.justmoney.co.za, South Africa's online guide to money, agrees, saying: "If owners are worried about losing their homes they should not be panicked in to taking the drastic step of auctioning off their property. Buyers at auctions are looking for cheap deals, so a property is likely to sell at auction for less than the market value, which could mean that sellers might not even be able to recoup enough money to pay off all their debts."

Hirst, himself a registered debt counsellor, says that people should be doing everything in their power to keep hold of their fixed assets. Instead, he argues that they should be taking stock of all their expenses and seeing whether they could be saving money elsewhere. Failing that, South Africans should apply for debt review.

"By going under debt review, consumers are able to restructure their finances in a way that may allow them to keep their family home. A registered NCA debt counsellor will be able to restructure their debt repayments so that they have enough money to live on each month after they pay the monies that they owe."

Debt Review was introduced by the National Credit Regulator in June 2007 and aims to offer a life line to over indebted consumers. Once under debt review, consumers work hand in hand with their counsellor to restructure a repayment plan.  The counsellor will negotiate with creditors on behalf of the consumer and get monthly payments down to a reasonable amount.

Both Beadle and Hirst advise against consumers selling their houses in the current climate unless they absolutely have to.  Beadle says, "People with debt problems should always seek independent financial advice before they take such drastic action. They should talk to their mortgage lender as soon as they have problems meeting their home loan repayments, but they should also consult a registered debt-counsellor who can advise on their entire financial situation.

People with major debts may well have to sell their homes - but having the advice of a debt counsellor could give them the time to sell it on the open market for its full worth."

Hirst advises that consumers try the following before rushing to auction:

1. "If you have short term debt as well as a home loan, see if you can consolidate this short term debt into your home loan." 

This will mean one monthly repayment at the cheapest possible interest rate. "It is not always advisable to move short term debt over the long term, but these clients have no choice. If they start earning more money they can always overpay into their bond."

2. "Seek help on debt management. Consultants can help you manage your debt and reduce your budget.

They will advise you on things like paying off the most expensive debt first."

3. "If it has gone too far then you need to go under debt review.

Only a debt counsellor can do this. It is a fantastic method to get protection from your creditors, rearrange your debt and have the debt counsellor make a repayments proposal to the creditors to get you out of debt."

Recent Articles

Featured Travel ban – how to claim for the loss incurred

As with the recent Covid-19 pandemic, governments sometimes issue travel bans to prevent people from travelling to other countries. This becomes even more complicated if you’ve already planned and paid for your trip. Your flights will be cancelled, and you may lose money from cancelled accommodation arrangements. How do you claim for the financial losses incurred due to a travel ban?

How to finance and insure a second-hand vehicle

Buying a second-hand vehicle may suit your budget better than acquiring a new one. But what impact does an older model have on vehicle finance and car insurance? We reached out to specialists in the field to explain what the financial implications are of pursuing a second-hand vehicle.

Reading your loan agreement: look out for this

Many people don’t read their loan agreements. They just sign on the dotted line without realising that they could be signing their lives away. But it’s important to review your loan agreement before and after taking your loan to avoid future setbacks.

 

Part 1: The difference between good and bad debt

In the first part of our Debt-ucate series we explore the difference between good and bad debt and why debt is, in fact, necessary.

Deals

Udemy online course for R180

Price: R180
When: Until 27 March 2020
Where: Online

Educate your kids for free with Skills Share

Price: Free
When: Daily
Where: Online

Take advantage of payment holidays from Standard Bank and Nedbank

Price: Free
When: From 1 April to 30 June 2020
Where: Nationwide