DEBT COUNSELLING IN SOUTH AFRICA

In South Africa, debt counselling (also called debt review) is a formal process where a debt counsellor helps consumers who are struggling with excessive debt. The counsellor creates an affordable repayment plan and negotiates with creditors to extend credit terms and reduce monthly payments, and then secures a court order to confirm these new payment arrangements. During this process, the counsellor acts on behalf of the consumer to manage creditor negotiations and make repayments more manageable, with the goal of preventing creditors from taking legal action.

Recognised by the National Credit Regulator, a debt counsellor is a certified professional who aids consumers overwhelmed by debt. Their primary role is to create tailored and affordable repayment strategies and then negotiate these plans with creditors on behalf of the consumer. With this support, people who are struggling with debt can adequately cover their essential monthly expenses — such as food, school fees, and transportation — while consistently meeting negotiated debt payments.

Debt counselling (a strategy set forth by the National Credit Act) can help you if you’re struggling with overwhelming debt. It involves restructuring your existing credit agreements to lower your monthly payments and make them more manageable. By choosing debt counselling, you can maintain a reasonable standard of living and avoid legal issues. In this process, your creditors must negotiate with your debt counsellor to create a workable repayment plan that suits your financial situation.

You cannot apply for debt counselling if you are unemployed because you must have a steady income to qualify for a revised payment plan. That said, if you are married and your spouse is permanently employed, you can apply jointly for debt counselling.

Debt counselling begins with a financial assessment by a debt counsellor.

If you are not over-indebted, the counsellor can assist in debt restructuring in South Africa your monthly budget to better manage debt repayments.

If you are found to be over-indebted, the counsellor will place you under debt review and propose a tailored repayment plan to your creditors and the court. You will make monthly payments to a Payment Distribution Agency, which will then distribute these funds to your creditors. This consolidates your payments into a single transaction and simplifies the repayment process. Once all your debts are cleared, you will receive a clearance certificate stating all debts have been paid according to the plan.

Being over-indebted means you are unable to fulfil your financial obligations as per your credit agreements. This often occurs if your expenses and debts exceed your income. For example, if your monthly income is R20,000 but your expenses and debt repayments total R25,000, you would be considered over-indebted.

Under the National Credit Act, finalising a debt repayment plan involves obtaining a court order — and this might require a court appearance. However, not all courts require your presence. In some cases, your debt counsellor can represent you. The requirement varies by court jurisdiction. In most cases you do not need to appear in court.

The cost of debt counselling varies based on your financial situation. The National Credit Regulator regulates the fees, which will be detailed when you apply for debt counselling. These fees are incorporated into your debt repayment plan.

Being blacklisted occurs when you fail to meet your debt obligations, adversely affecting your credit rating. This history can hinder your ability to obtain personal loans or credit cards, as credit providers will view you as a high-risk borrower. This could lead to your credit applications being denied or approved with higher interest rates or stricter terms.

Your debt review’s duration will depend on your specific financial situation. Debt counsellors often negotiate extended repayment terms with creditors, and this can prolong the debt repayment period beyond the original schedule. Your repayment plan will outline the timeline for settling your debts (provided you adhere to the agreed payment schedule).

No, the law protects those under debt review from being blacklisted. However, if you were blacklisted prior to entering debt counselling, that status may remain on your credit report until your financial situation improves and the records are updated post-counselling.

No. You cannot take on new credit, such as personal loans, home loans, or credit cards when you are under debt review. This restriction ensures that you focus on reducing your existing debt without accumulating more. It also protects credit providers from potential accusations of irresponsible lending.

It’s absolutely critical to adhere to the repayment plan agreed upon during the debt review. If you miss a payment, creditors have the legal right to terminate the debt review agreement and may pursue legal action to recover the debt.

Being under debt review will reflect on your credit record and tell potential lenders that you are working to resolve your debt issues. After completing the process and settling all debts, you will receive a clearance certificate and your credit record will no longer show that you were under debt review. This then allows you to engage in new credit activities.

Reckless credit occurs when a lender approves credit for a consumer who clearly lacks the means to make repayments. This practice can push consumers further into debt. Credit providers are legally required to perform thorough financial assessments before granting credit to prevent such scenarios.

If you are married in a community of property, a joint application in debt review requires you and your partner to apply together. This is essential as your financial activities and obligations are legally interconnected. Applying jointly ensures that the debt review process accurately reflects the combined financial situation of both partners.

You can generally maintain your insurance policies during debt review, as most repayment plans account for necessary insurance expenses (especially if you have vehicle finance that requires maintaining car insurance).

Debt review, sequestration, and administration offer you three distinct debt relief options.

• In debt review or debt counselling, a debt counsellor works with you to negotiate with your creditors. Their goal is to extend your credit terms and reduce your payments by consolidating your debts into a single, more manageable monthly payment.
• Administration reduces the frequency and amount of your debt repayments to once every three months. This approach can indefinitely extend your repayment period and is typically suited for smaller amounts of debt, but it can be a lengthy process.
• Sequestration involves selling your assets to cover your debts under the supervision of a court-appointed manager. Although this method can significantly cut down your debt, it tends to be both costly and comprehensive.

Each of these solutions comes with its own implications, and the best choice depends on your specific financial needs and goals.