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If the current pandemic has made it impossible for you to service your debt, all hope is not lost. There are steps you can take to keep yourself from being handed over and to buy some time. Taking steps to remedy this situation can save you money in the long run.

As we’ve explained before, spending money you don’t have comes at a cost. You pay interest on money borrowed. Formal debt channels like credit and store cards come with monthly account fees too. For this reason, the money you repay will always be more than the money you borrowed. These additional costs are partly why it’s so easy to fall behind on debt repayments. 

Sadly, there’s more bad news. When you can’t pay your debts, the institutions to whom you owe money hand you over to debt collection agencies. These agencies are paid to remind you of your outstanding payments, follow up when you miss payments and arrange repayment plans. 

Debt collection agencies are legal businesses that are entitled to recoup fees from people who struggle to meet their debt obligations. Once an account gets handed over, these companies charge a small fee every time they reach out. 

What debt collectors can charge

Every time a debt collection agency reaches out—whether by email, SMS or phone call—a charge is levied against your outstanding debts. In addition to the money you borrowed, your interest and account fees, these charges become part of your growing debt burden.

Here’s a sample of the fees a debt collection agency is legally allowed to charge to your account:

• Email, letter or fax: R21
• Phone call: R21
• Acknowledgement of debt document: R210
• Consultation: R52
• SMS notification: R3

Debt collectors are allowed to charge as much as the money you owe, or up to R1023 (whichever is less) in addition to the money you owe. 

How this money is charged

Let’s say you have R2,500 outstanding on a clothing account. Your account has been handed over to a debt collection agency. Each of the following interactions triggers a charge to your account:

1. The agency called you once, you panicked and asked them to call you back later. R21
2. When they do call back later, you decide not to answer the phone. R21
3. The agency then sends you an SMS to remind you of your outstanding amount. R3
4. Later they call you again, and you miss the call. R21
5. They send another SMS. R3

This (fairly common) exchange can end up costing you R69. This amount gets added to your outstanding debt and at the end of the first month, you owe R2,569.00, even though you didn’t spend any more money. 

The agency can keep adding charges to your outstanding debt up to R1023. On a R2,500 account, that’s just shy of 41%! Essentially, if you had spent the cash instead of taking on debt, you would have been able to spend R3,523. 

How to avoid debt collection fees

Fortunately, you can avoid these additional costs fairly easily. Since debt collection agencies are allowed to negotiate a debt repayment plan with you, this could be an opportunity to get a discount on your debts. you could also extend your repayment period to reduce your monthly contribution. The only way to turn this setback into an opportunity is by answering the phone.

If you engage with the collection agency about your outstanding debt, commit to a repayment plan and stick to it, the amount you have to pay the debt collection agency is reduced dramatically. The agency will charge you a R52 consultation fee and 10% of the instalment fee for each payment.

Sticking to the repayment plan can significantly reduce the amount the collection agency can legally charge you. The agency might be able to offer you a discount on your outstanding debt, as well as the interest and any additional fees, if you stick to the repayment plan. Imagine getting to pay 20% less on all your debt, just because you answered the phone!

It’s normal to feel overwhelmed and afraid when your debt has been handed over. However, avoiding a debt collector can make the situation a whole lot worse and engaging with the collection agency might end up saving you money!

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This series will help you gain control of debts that have spiralled out of control. We will explain what it means to be handed over for collection and how that differs from debt review, debt consolidation and insolvency. We will help you understand your rights as a consumer and offer some debt management strategies. This series is possible with the help of VeriCred, our partners in debt education.