What you need to know about debt counselling in South Africa

Many consumers are feeling the impact of the Covid-19 lockdown on their jobs and income, with some falling behind on their financial obligations. The National Credit Regulator (NCR) has advised, however, that financial distress can be carefully navigated by debt counselling.

Despite life progressively returning to normal as lockdown levels are eased and economic sectors return to productivity, many consumers are facing the bleak prospect of being blacklisted.

Many South African households are in significant financial hardship and others have been struggling to make ends meet even before the Covid-19 pandemic, said Advocate Kedilatile Legodi, NCR acting manager for education and communication.

Debt counselling was introduced in the National Credit Act (NCA) in 2007 as a debt relief measure intended to assist over-indebted consumers struggling to keep up with repayment commitments. Since then, consumers could restructure debts to make repayments manageable.

“Furthermore, the process of debt counselling leads to rehabilitation, as it presents consumers with an opportunity to start afresh and build a clean credit record,” said the regulator.

Debt counselling, which can be entered into individually or as a couple married in community of property, provides an opportunity to consumers to repay debts without borrowing more money or taking on extra debt.

Consumers, if the relief intervention is applied for before credit providers institute legal action to enforce the debt collection, receive protection against such legal action and repossession of assets.

According to the Act, a consumer is also protected if they continue to honour repayments while under debt counselling, until all debts are paid up.

“Essential/living expenses such as groceries, school fees and others are taken into account before a determination of how much is available to offer towards your debts,” the NCR said.

A registered debt counsellor negotiates reduced repayments on behalf of the consumer, using the consumer’s existing income.

The restructuring of debts, according to the Act, is approved by a Magistrate Court or the National Consumer Tribunal. This provides assurance that the negotiated and restructured repayment terms are fixed for the duration that the consumer is under debt counselling.

The NCR reiterates that there is no limit in terms of the amount of debt that can be placed under debt counselling, as long as legal action is not taken, the consumer debt can be included under debt counselling.

“There is no time frame for a consumer to be under debt counselling, as the term is dependent on the consumer’s financial circumstances such as debt, income, living expenses and others,” the NCR said.

In the instance that a consumer’s short-term debt is paid in full and the only remaining debt is an up-to-date home loan, the customer is issued with a clearance certificate.

At this point, all credit information of accounts that were under debt counselling will be expunged from a credit profile/record at the credit bureau, allowing the consumer to start on a clean state.

Going forward, the affected individual has the option to make a single payment through the use of the Payment Distribution Agents (PDAs) registered with the NCR.

PDAs have a mandate to collect and distribute debt counselling funds on behalf of consumers to credit providers. This option provides convenience for the consumer.

Legodi said while it may be difficult for many to confront their financial hardship, consumers who are receiving income are encouraged to act immediately by considering debt counselling.

This, he said, intervenes as a relief measure and allays the prospects of assets – such as houses, cars and others – being repossessed by credit providers.

If a consumer is considering debt counselling, which is sometimes referred to as debt review, the NCR said an individual must have an income and not be under debt administration.

Critically, warns the regulator, once a consumer applies for debt counselling, they will not get any further credit and the person’s name will be flagged at the credit bureaus.

While this is not a listing, it is an indicator that a consumer has applied for debt counselling.

Debt counselling is offered by NCR registered debt counsellors, whose status can be verified on the NCR website.

While debt counselling services are not offered for free, the regulator emphasises that costs, which can be confirmed on the NCR website, should be explained to consumers upfront by the debt counsellor.

Where a court order has been granted, said the NCR, consumers can only exit debt counselling upon receipt of a clearance certificate from their debt counsellor.

Additionally, consumers should use a debt counsellor that is close to where they live or work for easy access to enable them to physically visit the debt counsellor’s office should the need arise.

Legodi stressed that consumers should ensure they receive a comprehensive explanation from the debt counsellor and understand the debt counselling process before they sign and accept the application.

Furthermore, they must have knowledge of who their debt counsellor is, what the consequences of being under debt counselling are, how their debt is going to be restructured, the related costs, and what their rights and obligations are under debt counselling so they are able to make informed decisions.

Read: This is how much of their income South Africans are spending on debt

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