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How Debt Counselling Works

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Debt Review

How Debt Counselling Works

Debt counselling is a process which is regulated by the National Credit Act of South Africa and entails assistance to over-indebted consumers. The counselling could take the form of budget restructuring assistance, to help the consumer pay their debts and still afford the basic living expenses. It could also entail the restructuring of debt payments, after negotiation with the credit providers on behalf of the consumer, and the monitoring of payments, as well as after-care assistance.

Debt Counsellor

The counsellor is registered with the National Credit Regulator and has gone through the necessary training to assist over-indebted consumers. The counsellor reviews the consumer’s current income and expenses, as well as the monthly debt payments, in addition to the total amount to be paid. This is to determine if the consumer is over-indebted. If the review shows that the consumer is indeed over-indebted, the counsellor helps the consumer to restructure their budget, to allow for the covering of basic living expenses and to ensure that the consumer can pay back the owing money. The latter part involves the calculation of lower monthly payments to the creditors. All the payments are consolidated into a single monthly payment, which is more affordable for the consumer.

The counsellor needs to negotiate the proposed lower payments with the creditors and the Magistrate’s Court then orders for enforcement of the debt agreement.  A debit order is placed on the consumer’s bank account for the negotiated amount and the payment distribution agency then distributes the amount to the various credit providers over the agreed term. Once the total debt has been paid, the consumer receives a debt clearance certificate from the counsellor, allowing the consumer to enter into credit agreements thereafter. A person can voluntarily undergo counselling and review, or the court may instruct a person to undergo such.

Counsellor Compensation

The cost involved includes an application fee according to Schedule 2(2) of the National Credit Act and, where applicable, a rejection fee of R300 excluding VAT, should the application be rejected. The consumer also pays a restructuring fee or the lesser of the first instalment of the agreed-upon debt management plan, or maximum fee of R6 000 excluding VAT. The consumer must pay the total amount of the fee upon the first instalment. The counsellor is also entitled to an after-care fee of 5% of the debt monthly instalment. This fee is capped at R400 for the first two years, whereafter it becomes 3% excluding VAT and still capped at R400. The consumer starts to pay the after-care fee at the start of the second month, after the restructuring fee has been paid. A legal fee of R750 is also payable, but only after the restructuring fee has been paid.

Who Should Consider Counselling?

If you struggle to make your monthly debt payments and are starting to fall behind in payments, without the possibility of recovering from the back-log, you need to consider debt counselling. Indications of over-indebtedness include letters demanding payment, credit provider calls to pressure for payment, inability to make the full monthly payments, and skipping of payments to service other credit provider accounts. Note that you must earn a monthly income and have proof of such. Debt review is for individuals. Debts for which judgment has been taken cannot be included in the review.

Excluded Debts

Debts that cannot be included in the review include service contracts such as telecommunication, water and electricity, school, vehicle leases, internet, medical aid contributions, DStv and home rental. Debts that can be included are that of credit cards, personal loans, mortgages, vehicle finance (without residual), and store accounts.

Why Debt Review?

Often, credit providers are not willing to negotiate repayment amounts with consumers and more often than not, harass the consumers through countless calls, letters for demand of payment and through debt collectors. Once a person develops an adverse credit record because of late or skipped payments, it becomes difficult to enter into new credit agreements. Landlords look at the credit history of tenants and even when a person applies for a job, their credit record can become an obstacle. Avoiding the situation is best. Unfortunately, living expenses are on the rise and many people find that they can no longer afford to repay their debts. Rather than facing foreclosure on their homes, and repossession of their vehicles and other assets, they opt for debt review to help them pay lower monthly instalments and enjoy protection against the repossession of their assets.

Contact us for debt counselling assistance, to help you become debt-free and ensure that you do not lose valuable assets in the process.