A beginner’s guide to debt counselling

Many South Africans are struggling to meet their monthly debt obligations. Sadly, some don’t even know that help is within their reach.

In 2007, the government introduced a programme called debt counselling to assist such consumers.

What is debt counselling?

Debt counselling is a debt relief programme that helps over-indebted consumers through an affordable repayment plan to repay their outstanding debt.

Are you over-indebted?

According to the National Credit Act (NCA), you are over-indebted if you are unable or struggling to pay all your debt on time. If you find that your debt-to-income ratio is more than 43% or if more than half of your income goes towards your debt repayments, you should seek help.

How does debt counselling work?

All you need to do is provide the debt counsellor your information such as proof of income, your ID number, bank statements, a list of your expenses, and credit obligations.

Then debt counselling the process will go as follows:

Step 1:

A debt counsellor will determine how indebted you are by measuring your expenses and liabilities against your income. If the former two exceed the latter, you are over-indebted.

Step 2:

Once the debt counsellor has ascertained that you are over-indebted, they will apply for a court order to halt all your creditors from calling you.

Step 3:

Your debt counsellor will inform the credit bureaus to flag you as undergoing debt counselling within 30 days of your application. Remember you will not be able to access further credit until you have been rehabilitated.

Step 4:

The debt counsellor will negotiate with creditors - on your behalf - for lower interest rates and fees on your various credit agreements, as well as extended payment terms.

Step 5:

After this you will pay one reduced monthly instalment which is a sum of all your instalments for your loans from your creditors. This amount will be distributed to all the creditors that are listed on the plan.

Who can apply for debt counselling?

Any person who feels over-indebted can apply for debt counselling, and you can jointly apply with your spouse if you are married in community of property. However, businesses or companies are not allowed to apply.

What are the costs of debt counselling?

According to the NCA, you will pay several fees for debt counselling, including an application fee, an administration fee, and a restructuring fee. However, it’s important to note that your fees will be based on your unique circumstances, and we will never charge you anything you cannot afford.

The fees for debt counselling will form part of your reduced monthly instalments. For example, if your current monthly instalments equal R2 000, your debt counsellor may reduce this down to R1500 per month, where R1400 will be sent to your creditors and R100 will count as your debt counselling fees.

This means you will still pay R500 less each month, even when the necessary fees are included. Therefore, anyone in debt can afford debt counselling.

Can you apply for debt counselling if you are unemployed?

The debt counselling programme is for consumers who can provide proof that they can afford the lower monthly instalments that are afforded by the programme. You need to have some money that can be used to pay off your debt, if this is from a job or another source both would be accepted. 

Find out more about debt counselling if you are unemployed - https://www.debtbusters.co.za/articles/can-go-debt-counselling-unemployed/

If you are unemployed but married in community of property, you can jointly apply for debt counselling with your spouse.

What happens after debt counselling?

Once you have been rehabilitated — that is, once you have paid all your debts according to your restructuring plan — you will receive a clearance certificate that shows that you have completed the debt counselling programme.

Your debt counsellor will send the certificate to all the credit bureaus so that they can “unlist” you under debt counselling. It is up to you to ensure that the bureaus remove the debt counselling status. Failing to do so may harm your chances of you accessing credit again in future.

Learn more and get started 

If you are struggling to decide what the best solution for your debt problem is, call DebtBusters today on 0869990606 or speak to a consultant at info@debtbusters.co.za. DebtBusters expert consultants will advise what the best next move for you will be.