How Does Debt Counseling Work in South Africa?

If you, like 25 million other South Africans, are living in debt and struggling to pay, debt counselling is an excellent way to get yourself out of the fix.

But while it’s an effective debt management strategy, lack of information, and in other instances, misinformation means most South Africans try to singlehandedly manage their debts, throwing themselves even deeper into the debt pit. 

So, how exactly does debt counselling work in South Africa? Here’s an article covering that and more. 

What is Debt Counseling, and is it Right for Me? 

Also known as debt review, debt counselling is designed to assist over-indebted South Africans in reorganizing their debts and regaining financial control and stability through a legally approved debt management plan. 

Debt counselling is right for you if your debt-to-income ratio is over 43%. Additionally, you should consider using this debt relief strategy if you answer “yes” to any of the following questions:

• Is your unsecured debt roughly 15% to 39% of your yearly income?
• Do you have substantial minimum monthly payments?
• Do you owe multiple creditors with limited repayment deadlines?
• Are you far behind and unable to pay essential bills on time? 
• Do you need to rely on bank overdraft protection?
• Are creditors constantly on your case?
• Does this debt situation cause you substantial stress?

How Does Debt Counseling Work? 

If you’re always wondering how does debt counselling work in South Africa, here’s a section covering all you need to know: 

Why South Africans can Benefit from Debt Counseling?

The National Credit Act was introduced to promote the social and economic welfare of South Africans. As part of its efforts towards the purpose, the NCA created debt counselling in 2007 to help give over-indebted individuals an opportunity to repay their debt without borrowing more, eventually enabling them to start to build wealth and clean credit records.

Here’s how South Africans benefit from the program:

• Professional financial guidance and protection: debt counselling involves working with an experienced debt counsellor who’ll not only guide you through restructuring your debt, but can also share helpful advice to help you regain control over your finances
• Manageable repayment terms: a debt counsellor negotiates with creditors to get you affordable and manageable repayment terms such as lower interest or reduced monthly instalments.
• Fewer creditor calls: with debt counselling, you not only get favourable repayment terms but also get creditors off your back, conversely easing the stress of debt repayment.

Overview of the Debt Counseling Process in South Africa 

The debt counselling process in South Africa starts with you selecting and contacting a debt counselling agency under the NCA.

A debt counsellor will then assess whether you’re over-indebted by comparing your expenses and liability against income. 

If you’re over-indebted, the counsellor will work out a new repayment budget and contact your creditors to negotiate new repayment terms on your behalf.

The new terms might mean reduced interest rates, lower monthly minimums, or even an extension plan that allows you more time to repay. Which of these benefits apply to you will depend on your specific situation. 

You’re protected from any legal action by the creditor for up to 60 days after your application, and the debt counsellor will even apply a court order to keep creditors from bugging you during the repayment period.

If creditors approve the new repayment plan, you’ll be expected to start making payments as per the agreed date. Your debt counsellor will also notify credit bureaus of your enrollment and debt counselling status.

When repayment is complete, you’ll receive a clearance certificate, be free of troublesome debt, and be eligible for credit once again.