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Counselling good way out of debt

Debt counselling is an effective way of helping South Africans who are struggling with debt, but a lack of understanding about the process, misinformation and concerns about being stigmatised mean some consumers don’t seek help or leave it until it’s too late.

National Debt Counsellors Association (NDCA) chairperson Benay Sager says: “Many people who could have really benefited instead had to try and manage their financial situation themselves, potentially getting deeper into difficulties, and ultimately risking their homes and cars being repossessed – all because they didn’t understand the process, heard some rumour or were too embarrassed to speak to a reputable debt counsellor.”

He says South Africa’s debt counselling sector is world-class. It’s well structured, highly regulated and it works.

“We face an unprecedented situation, where the Covid-19 lockdown has severely impacted an economy that was already in difficulties,” he explained. “The resultant contraction, job losses and salary cuts will mean many more people face financial stress, and we need to be sure they can make informed decisions based on facts, not hearsay or scare stories.”

On contacting a debt counsellor consumers should be given a free debt assessment to determine their level of debt and whether debt counselling is a potential solution.

If the assessment determines someone is over-indebted they can then decide whether to apply formally for debt counselling. Once they do so the debt counsellor does most of the heavy lifting, by informing all relevant creditors and credit bureaus the person is undergoing debt counselling. This helps alleviate a lot of stress, as creditors should then deal with the debt counsellor rather than the consumer.

As part of the process the debt counsellor negotiates reduced monthly payments on all credit agreements that fall under the National Credit Act. This restructuring of debt is done within industry parameters, and strikes the balance between the consumer’s ability to pay and their overall debt levels. It is not something most people can easily or efficiently do on their own.

Once more affordable repayment rates are negotiated, the consumer’s rearranged debt is approved by a court or the National Consumer Tribunal, to ensure renegotiated rates are fixed for the duration of the debt counselling.

Consumers make one affordable payment each month via a debit order or debicheck payment, which is distributed to the creditors included in the debt counselling for the duration of the plan. Thanks to the efficiency of the system, more than 90% of this renegotiated debt repayment goes directly to the creditors during the debt counselling process.

All the relevant monthly fees are included in this single monthly amount, which is paid to an independent payment distribution agency, also regulated by the National Credit Regulator.

The debt counsellor’s client-service staff are available throughout the process to offer advice and support.

Debt counselling usually lasts for between three to five years, depending on the amount of debt, the arrangements the debt counsellor is able to negotiate with creditors and what the consumer can afford to repay.

Should the consumer’s financial circumstances improve they can increase the monthly payment or pay a lump sum to reduce the period or end the process. This is encouraged.

When repayments are completed, the debt counsellor will issue a clearance certificate confirming all accounts listed under the debt counselling agreement are paid. Home loans are the exception; they need to be up to date. Credit bureaus receive the certificate.

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