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A Comprehensive Guide to Debt Counselling in South Africa

Debt is a pervasive issue affecting individuals and families across South Africa. As the cost of living rises and economic challenges persist, many struggle to manage their financial obligations. In such situations, Debt Counselling can be a lifeline. Debt Counselling (also known as Debt Review), is a debt relief measure in South Africa assisting indebted consumers in getting out of debt. If a person is earning an income but they are unable to meet their minimum credit obligations every month, then help is available through the process of debt review.

The National Credit Act 34 of 2005 introduced the process of Debt Counselling as a means to prevent over-indebted consumers from being blacklisted and having to deal with the consequences thereof. The aim of the National Credit Act is to promote an effective, accessible, and impartial credit market that seeks to protect consumers from over-indebtedness.

Debt Counsellors

The National Credit Act introduced Debt Counsellors. Debt Counsellors are trained to assist and guide people with debt problems, to design debt repayment plans, and to negotiate agreements with creditors to enable people to afford their debt obligations. Debt Counsellors need to be registered with the National Credit Regulator.

The National Credit Regulator has provided certain guidelines to be followed by Debt Counsellors when they are assessing whether a person is over-indebted and thus eligible for Debt Counselling. These guidelines include considering the income, expenses, and debt obligations of a consumer to ascertain whether they have enough funds to cover their living expenses and their debt.

What are the benefits of Debt Counselling?

The Debt Counselling process was designed to protect over-indebted South Africans if they can no longer afford to pay their creditors. This means protecting a person’s assets and ensuring they have an affordable way to cover their cost of living and get out of debt.

Benefits of Debt Counselling include:

  • Legal Protection: Debt Counselling provides immediate legal protection against legal actions and asset repossession by creditors. Creditors also cannot contact a consumer directly as all communication will happen through the Debt Counsellor.
  • Structured Repayment: It offers a structured and manageable repayment plan tailored to the consumer’s financial situation. When a person enters Debt Counselling, the Debt Counsellor will negotiate with the creditors to reduce monthly payments and interest rates. Debt Counsellors often also negotiate with creditors to lower interest rates, reducing the overall cost of debt.
  • Debt-free: By following the Debt Counselling plan and making regular payments, the consumer can eventually pay off their debts in full and become debt-free. This can have a significant positive impact on their financial well-being, as it frees up money that was previously going towards debt payments, and allows them to start saving for the future.

Who qualifies for Debt Counselling?

A person is over-indebted if they cannot pay their debts in a timely manner as agreed with credit providers. Some indicators of over-indebtedness include situations where a person has to borrow money to pay debts; he/she uses their credit card and overdraft facilities to pay their debts; he/she skips payments on certain accounts in order to pay others; or he/she receives letters of demand and summonses from credit providers and/or lawyers.

A person who is struggling to meet their monthly debt obligations qualifies for Debt Counselling if they have a distributable income which will be used to offer reduced payments to their credit providers. If a couple has been married in a community of property, they must jointly apply for Debt Counselling.

The Debt Counselling Process

The Debt Counselling process typically involves the following steps:

1. Assessment

During this stage, the Debt Counsellor will look at the consumer’s income, expenses, and debts to ascertain whether they are over-indebted and qualify for debt review.

2. Application

If the Debt Counsellor has determined that the consumer is over-indebted, the Debt Counsellor will assist them in completing the necessary application forms and compile a debt repayment proposal that includes a proposed repayment plan that outlines how the consumer intends to repay their debts over a longer period of time.

3. Negotiation

The Debt Counsellor will notify the creditors and the credit bureaus of the consumer’s intention to undergo debt counselling and thereafter negotiate with the creditors to establish reduced monthly payments and potentially lower interest rates. Once all creditors have agreed, the plan becomes legally binding on all parties.

4. Payment

The consumer will then make a single monthly payment to a Payment Distribution Agency (PDA), which will then distribute the funds to the creditors in accordance with the repayment plan. If the consumer adheres to the repayment plan, the creditors are not allowed to take legal action against them while they are under debt review.

5. Clearance

Once all debts have been paid in full as per the repayment plan, the consumer will receive a clearance certificate from their Debt Counsellor, and they will be debt-free.

Contact Us

If you have already reduced your spending and can’t earn more, but still struggle to repay your creditors, then the good news is that you still have options that can help – like Debt Counselling. Getting rid of your debt will help you relieve the stress that is so bad for you and your family. Less debt means less stress. Less stress means you can look forward to waking up each day, going to work, and spending time with your family and friends.

If you are experiencing debt stress, then now is the time to act. Don’t waste time, contact us to start your journey to living a debt-free life. You will find it brings great peace of mind.

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