Battling debt can be incredibly stressful, especially when you find yourself over-indebted and unable to meet your monthly financial obligations.
With the cost of living steadily rising every year, as well as the financial fallout of the COVID-19 pandemic, many South Africans are relying on their existing credit and borrowing money to relieve themselves of already incurred debt. Moreover, a lack of understanding and harmful misinformation regarding debt sometimes repels consumers from seeking professional help.
Thankfully, there is a safe solution for tackling debt. It’s called debt counselling. In this post, we will explore precisely what debt counselling is in South Africa and why it may be your best option to securely overcome debt.
What is debt counselling in South Africa?
Debt counselling is a practice that helps individuals that are struggling to repay their debt through a regulated process that offers various benefits that can help alleviate the pressures of over-indebtedness.
The NCA introduced debt counselling as a debt relief measure in 2007 as part of the National Credit Act 34 of 2005 and appointed National Credit Regulator (NCR) as the governing entity.
Before the National Credit Act, 34 of 2005 took effect, South African consumers were at risk of being exploited by unethical credit providers, misinformation and a lack of effective regulation. Impacting all players in the credit industry, the Act also aspires to develop a more accessible, fair and non-discriminatory credit market in South Africa.
So how exactly does debt counselling help over-indebted South African consumers?
- By creating a detailed debt repayment plan
- By providing budgeting assistance and financial advice
- By promoting financial literacy and rehabilitation
Although debt counselling and debt review both form part of the National Credit Act, there’s a difference between the two. Check out our post on debt counselling vs debt review.
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By creating a detailed debt repayment plan
Your debt counsellor will consolidate all your debts, negotiate with your credit providers for lower repayment amounts and craft a structured repayment plan suitable to your needs and financial capabilities. In order to make the payment process as simple as possible, the repayment plan only requires one monthly instalment to be paid.
By providing budgeting assistance and financial advice
Alongside the detailed repayment plan, your debt counsellor is available to provide ongoing budgeting and financial advice to ensure that you are at ease throughout the process, as well as understand exactly what is needed of you.
By promoting financial literacy and rehabilitation
The debt counselling process also encourages financial rehabilitation, providing consumers with an opportunity to greaten their financial literacy, safely address their financial situation without incurring additional debt and placing them on a path to achieve a sustainable, debt-free lifestyle.
Facing the reality of your debt can be very difficult; however, financial liberty is invaluable. For many, debt counselling is the necessary first step towards achieving financial freedom.
How does debt counselling work?
As previously mentioned, debt counselling is intended to assist over-indebted consumers in South Africa through the process of complete debt restructuring, reduced debt repayment negotiations, ongoing budgeting assistance and legal protection.
Let’s break down how debt counselling works in more detail. Here is an outline of the steps:
- Assessment of the consumer’s over-indebtedness.
- A registered debt counsellor guides the applicant through the application.
- A reduced and consolidated repayment plan is set up for the consumer.
- The benefits of debt review protect the consumer until their debt is repaid
Assessment of the consumer’s over-indebtedness
In order to be eligible for debt counselling, you have to prove that you are indeed over-indebted and in need of urgent assistance. Your application will be reviewed by a debt counsellor, whereby you will have to provide them with all the necessary financial evidence, and then a final decision will be made.
A registered debt counsellor guides the applicant through the application
After successfully applying for debt counselling, you will be assigned a qualified debt counsellor who will take over your unique case and communicate directly with all your credit providers on your behalf. This already takes the pressure off having to interact with potentially aggressive or unreasonable credit providers.
A reduced and consolidated repayment plan is set up for the consumer
To address your debt and make it a lot more manageable, your credit counsellor will begin negotiating reduced monthly repayments with your credit providers, longer repayment timelines if necessary, as well as provide secure financial advice to assist you in overcoming your debt securely and timeously.
The benefits of debt review protect the consumer until their debt is repaid
Lastly, if you enter into debt counselling before legal action has been taken against you, you receive protection against such legal action as well as unfortunate asset repossession. However, this is not one hundred percent guaranteed as every case is unique and tailored towards the over-indebted consumer.
Who can apply for debt counselling?
Any South African consumer struggling to meet their monthly debt obligations and have some form of income that can be distributed to repay their creditors at a reduced rate can apply for debt counselling in South Africa
Couples that are married in community of property are also able to apply.
What is over-indebtedness?
It is important to note that there is a difference between being in debt and being over-indebted. Being over-indebted means you are unable to make debt repayments on time and are incurring a detrimental amount of debt. If you believe that you are over-indebted and unable to regain financial control of your debt situation, consider applying for debt counselling as soon as possible.
However, on the flip side, consumers are encouraged to strengthen their credit scores by incurring small amounts of debt. This type of ‘good’ debt helps build a consumer’s credit history, benefiting them in the future when they need to borrow money from credit bureaus to make important payments – such as payments towards a vehicle, student loan or property.
Signs that you are incurring an unhealthy amount of debt or leaning towards being over-indebted include; having to constantly borrow money to pay other debt, relying on your credit cards and/or overdraft facilities to make debt repayments and/or receiving letters of demand from credit providers.
How is debt counselling regulated in South Africa?
Debt counselling in South Africa is regulated by the National Credit Regulator. The National Credit Regulator governs the debt counselling process, its fees as well as all the registered debt counsellors.
The aforementioned debt counsellors must be registered with the National Credit Regulator in order to provide credit counselling services. Each registered debt counsellor has a registration number that can be verified by the National Credit Regulator.
Here is the NCR’s database of registered debt counsellors.
In regards to the costs associated with the debt counselling process, all fees are included in the reduced repayment plan. Costs you can expect include an application fee, administration fee, restructuring fee and/or an aftercare fee. There are a number of other potential fees. However, they will be charged according to your specific case requirements.
If you would like to learn more about the fees set by the National Credit Regulator, click here: Debt counselling fees.
The debt counselling process is well-regulated in South Africa and is an excellent option for over-indebted consumers who want to take control of their finances and begin reducing their debt in a secure manner.
What is a debt counsellor?
In South Africa, a debt counsellor is a trained and certified professional that helps debt counselling applicants throughout the debt counselling process by assisting with various aspects such as documentation and interacting with third-parties on behalf of the applicant. Debt counsellors must be registered with the NCR and have a verifiable registration number.
As briefly mentioned earlier in this blog, when you successfully enter into the debt counselling process, you will be assigned a debt counsellor — here’s what you can expect from your debt counsellor:
- Providing professional and tailored financial and/or budgeting advice
- Communicating directly with credit providers on your behalf
- Drafting and assisting with the execution of a reduced debt repayment plan
- Managing and assisting the over-indebted consumer with legal processes and/or demands associated with the debt counselling process
Let us fully explore the above points.
Prior to their legal registration, debt counsellors have to successfully complete a NCR-approved debt counselling training course and satisfy the necessary educational background requirements and/or minimum experience, as well as display the ability to manage their own finances and debts.
Debt counsellors registered with the National Credit Regulator can legally provide debt counselling services when working for a firm or their own registered debt counselling business.
Guiding consumers through the debt counselling process, debt counsellors also assist by providing professional financial advice, communicating with your credit and the National Credit Regulator on your behalf, creating a structured repayment plan tailored to your particular financial needs, as well as managing all complex legal processes.
Besides checking that all the professional requirements of practising debt counselling are met, it is essential that you work with a debt counsellor you are comfortable with. Having a positive relationship with your debt counsellor will help you navigate the process with more ease and keep you motivated to achieve debt freedom.
Addressing your debt can be intimidating and sometimes emotionally overwhelming, however, debt counselling is a sound way to overcome your debt and gain true financial liberty before it is too late.
We hope this blog has clearly defined what debt counselling is in South Africa, and encouraged you to take the first step towards addressing your debt!