Understanding Prescribed Debt in South Africa

Prescribed Debt: What You Should Know About It in South Africa Discover what is prescribed debt, why shouldn’t pay it back, and what’s its impact on your credit score Have you ever received an unexpected demand for payment, be it through a phone call, email, or a letter, regarding an old debt you believed to be long forgotten? If so, you’re certainly not alone in this experience.  What if I informed you that you might be pressured to settle a “prescribed debt,” a debt  that you’re no longer legally obligated to pay? It may sound unbelievable, but it’s a fact. Find out more about prescribed debt and how to handle it below: What Is Prescribed Debt? Prescribed debt is debt that the lender can no longer collect because it has gone beyond its “expiry date.” Once a debt becomes prescribed, you’re no longer legally obligated to repay it. The concept of debt prescription varies by country and the type of debt in question. In South Africa, Prescription Act No. 68 of 1969 and the National Credit Act of 2005 (NCA) are the main governing laws that regulate debt prescription. Debt can become prescribed over a period of 3 to 30 years, depending on the kind of debt. For instance, the prescription period of personal and credit card debt is three years. Prescribed debt doesn’t mean that your debt has been forgiven; you’ll still owe your creditor. However, the lender loses the legal authority to collect the debt. Should you make payment toward prescribed debt, you would have acknowledged and accepted that you owe the creditor. As such, you’d have reset the prescription period and revived the creditor’s legal rights to collect the debt. What Is the Prescription Act No.68 of 1969? The Prescription Act of 1969 is a crucial piece of South African legislation designed to regulate the prescription of debts. It delineates the timeframe within which lenders can pursue legal action to compel borrowers to repay their debts. This act governs debt such as personal loans, commercial loans, judgmental debts, credit card debt, mortgages, and promissory notes. The Prescription Act benefits both lenders and borrowers. For borrowers, it constrains the time period within which a lender can legally pursue them for repayment. Once a debt becomes prescribed, the creditor loses the legal power to enforce it. Lenders need to be mindful of the prescription period specified by the act, ensuring they initiate legal action within the prescribed timeframe to recover the debt. Failure to do so results in the debt becoming unenforceable. When Is Debt Classified Prescribed? For debt to be prescribed, specific conditions must be met. The requirements include: Time limit: If your lender doesn’t contact you within a given period, and this lack of communication isn’t due to your relocation or a change of contact details, the debt in question may be prescribed. Otherwise, if your lender can prove that they communicated with you within the prescribed time frame, you’ll remain obligated to repay the debt. No legal action taken: Your lender shouldn’t have initiated any legal action to claim the debt within the prescribed time period. No acknowledgement of the debt: You shouldn’t have made a written or verbal acknowledgement of the debt during the prescribed period. Let’s make this clearer with an example. Suppose you borrowed money for personal use from a lender in 2019 and signed an agreement to repay the debt within three years. Due to personal circumstances, you were unable to make any payments. After three years, the debt could become prescribed if there was no contact, no legal action taken, and no acknowledgement of debt made verbally or telephonically. This means the lender is now prohibited from taking any legal action to compel you to repay the debt, and you’re no longer obliged to repay it. What Is an Acknowledgement of Debt? An acknowledgement of debt (AOD) is a legally binding agreement between a borrower and a lender. In this agreement, the borrower explicitly acknowledges the existence of a debt, its amount, repayment schedules, and the consequences of defaulting on the agreement. By signing the AOD, a borrower confirms their indebtedness to the lender. While the benefits of the AOD agreement are primarily in favour of the lender, there are advantages for the borrower as well. From the borrower’s perspective, signing an AOD can improve their credit ratings. Demonstrating a willingness to enter a formal agreement and fulfilling debt obligations can build a positive credit history, enhancing future borrowing opportunities. The AOD also clarifies whether you’re indebted and allows for effective financial planning. This can prevent unnecessary fees or legal actions due to non-payment. For lenders, the AOD offers legal proof of a debt’s existence, reducing the risk of defaults and misunderstandings. It also provides a legal framework for addressing issues and reinforces legal protection. Transparency in terms, such as interest rates and repayment schedules, ensures both parties have a clear understanding, minimising the risk of conflicts. It’s essential to exercise caution before signing an AOD. Review its terms and conditions and seek legal advice if there’s lack of clarity. Signing an AOD without a clear understanding can have lasting financial implications and potentially disadvantage you. While prescribed debt can relieve you from legal obligations, there may still be some consequences to navigate. What Are the Consequences of Prescribed Debt? While you can escape debt once it’s deemed prescribed, it may not be the end of your headaches. Here are some consequences that can come with prescribed debt: Potential legal action: Even though the debt is prescribed, your creditor can still attempt to take legal action against you. This could result in frequent visits to the court and possible financial losses. Damage to your credit score: One of the biggest disadvantages of prescribed debt is the potential damage to your credit score. This could prevent you from getting loans in the future. I’ll cover more about this shortly. Persistent collection efforts: While prescribed debt is legally unenforceable, some creditors could still

Saving Money: A Definitive Guide

Saving Money: A Definitive Guide Discover a Technique That Can More Than Triple Your Savings in Less Than 2.5 Years Without Increasing Your Self-Discipline or Willpower Robert Kiyosaki, the famous author of Rich Dad, Poor Dad once said that “It’s not how much money you make, but how much money you keep, how hard it works for you and how many generations you keep it for.” Millions of people in South Africa and globally know how accurate this Kiyosaki’s observation is. Saving money sets the foundation for achieving many goals, financial and otherwise. But why is it so hard to save money? You’ll discover the answer to that question in this article. Moreover, you’ll learn about a technique that has been proven to work to save for retirement that you can use to double your savings in less than 3 years, how to increase your savings, and where to keep your savings. Before we get started, you can choose to go directly to the chapter that interests you the most by clicking on it below Chapter 1: Why Should You Save Money? I’m sure you’re better positioned to answer why you need to save money. However, there are certain financial goals that are universal. And I’d like to share with you some of them, beginning with this… It’s a Powerful Means to Become Financially Free Imagine how your life would look if you achieved financial freedom! Although financial freedom means different things for different people, there is one common thing. You don’t worry about money anymore. If an emergency occurs, you’re covered. If you want to travel to any country in the world, you can do it anytime you want. For some, having financial freedom includes working a job because they want to, not because they are forced to. They have the freedom to pursue their passion. To achieve financial freedom, you need to develop the right habits. One of those habits is saving consistently. The good news is that there’s no law that says you should start saving at a certain age. However, the sooner you start, the faster you can reach financial freedom. Before you begin to save, write down at least 10 reasons why financial freedom is important to you. If you can come up with more, the better. Put your list in the order of priority. How much do you need to be financially free? This is a crucial question. Only you know the answer. Remember to consider your living expenses and inflation when you work out your financial freedom number. It Helps You Handle Financial Emergencies In 2022, Old Mutual published the results of its survey called the Old Mutual Savings and Investment Monitor (OMSIM) survey. One of the questions in the survey asked: “If you were retrenched or lost your job, would you have enough money saved to last you …,” and the respondents were given four options: 1 month or less, 2 months, 3 months, and more than 3 months. The results? A similar survey in 2019 revealed almost similar numbers: If you were part of the participants in this 2022 survey, what option would you have chosen? The reality is that the majority of South Africans live almost from hand to mouth. If a financial emergency occurs, we are forced to get into debt. This can include credit cards, personal loans, or informal debt like loan sharks. However, if we start saving or increase our savings, we can better handle unforeseen financial commitments. It Improves Your Mental Health Nothing in our lives works well when we can’t think straight. Imagine that you have caused a car accident and your car is a write-off. Sadly, your car insurer decides not to cover you because you failed to maintain your car regularly. You’re now sitting in a situation where you have no car to go to work. Perhaps this has left you with no school transport for your children. Imagine how this situation will impact how you think! For many of us, this will cause distress if not stress, especially if we don’t have enough savings to buy a new car. Yes, we can buy a new car on credit, but that digs us deeper into the debt hole. If this situation happened when we had enough savings, we could perhaps afford to buy another car, even if it’s a used car. Alternatively, we could make a large deposit for a new car to minimise the size of the car loan we take. Simply knowing that you’ve saved money changes the way you think, even in difficult financial circumstances. You don’t have to worry about where you’re going to find the money to cover many of your expenses. For instance, if you lost your job, you know you have a financial cushion to last you until you land a new one. This alone makes the task of finding a new job less stressful. When you save money, you’re also saving or improving your mental health. In turn, you’ll do other things in life much better. Chapter 2: Why More Than 98% of South Africa’s Households Don’t Save Money Saving money is supposed to be easy, right? After all, you simply cut a portion of your salary and stash it somewhere. Yet, less than 2% of South Africa’s households are doing it while many of us struggle to do it. This trend has been continuing since at least 2005, according to Trading Economics. Why? In this chapter, you’ll discover the major reason many households fail to save money. As you go over these reasons, check if they apply to you. When you find one that applies to you, resolve to fix it. Let’s get started with the first reason. 1. Money-Spending Is Easy Do you like doing difficult things? If you’re like most, you don’t. Many of us prefer doing simple things. Businesses have realised this and made things as simple as possible for us to buy. Technology has advanced so much that all you