Debt Restruct

What is Debt Counselling and Why Does it Matter?

smiling couple sitting on the wooden floor with their backs against their grey couch reading about debt counselling together on their laptop

With the recent Covid-19 lockdowns causing substantial financial hardship, many South Africans have struggled to make ends meet. Personal debt has spiralled, with TransUnion’s Financial Hardship Survey in South Africa showing that although consumer demand for debt fell, 79% of consumers reported reduced household income, and 85% had concerns about bills and loans. Nearly a third expected to run into a shortfall within a month.

The state of most people’s finances is precarious. For some, debt counselling may be the answer.


What Is Debt Counselling?

Debt counselling was introduced by the National Credit Act of 2005. It allows those who have too much debt (called “over-indebtedness”) to reorganise their debts and prevent insolvency. It also allowed the creation of debt counselling services to help those who have too much debt.

Consumers are declared over-indebted if they are unable to pay their bills in a timely manner. This is naturally quite complicated because every consumer has different levels of debt and different levels of income. It applies to most credit agreements, but there are limitations. The National Credit Act does not apply to the following:

  • School and student loans
  • Emergency loans
  • Public interest credit agreements
  • Pawn transactions
  • Incidental credit agreements
  • Temporary increases in credit limits under credit facility


A debt counsellor is a person who is licensed to create repayment plans that can then be presented to creditors and confirmed in law through a court hearing.

Debt counselling is not an act of insolvency. Insolvency requires a deliberate notice of inability to pay. Debt counselling, however, indicates that you have the ability to pay but just not as quickly as your creditors might prefer.

See our frequently asked questions to get answers to other popular questions about debt review.


What Does a Debt Counsellor Do? 

We have a detailed guide to what the debt review process entails on our blog, but to summarize,  a debt counsellor does the following:

  • Assess the full debt situation and helps you to understand which debts are covered and which ones are not.
  • Draws up a debt management plan by going over your budget
  • Inform your creditors that you are undergoing this process
  • Negotiate with creditors to reduce interest rates and monthly payments
Check to see if you qualify to reduce your debt instalment with our quick quiz

There are a couple of drawbacks to debt counselling, however:

  • While you are undergoing this process, you cannot access further credit.
  • There are fees, but they are set by law.
  • Your debt may take longer to pay off.


For most, the benefits outweigh the drawbacks:

  • You pay a single monthly payment, which makes finances easier.
  • The agreed-upon budget takes into account your basic monthly needs before debt repayments.
  • Once the plan has been agreed between you and your creditors, you shouldn’t get any more calls from them.
  • There is no permanent record of debt counselling.
  • Debt counselling staves off further action, provided you keep to the repayment plan.

Ideally, you would end up paying all your debts back within 60 months, although there is no upper limit to how long you can remain in debt counselling. Creditors will generally want to see a reasonable movement of debt, however, and they may reject a credit agreement that they feel takes too long.


Regulatory Costs of Debt Counselling 

Most costs for debt counselling are regulated by law. Typically, you will be charged the following:

It is important to note that the fees, regulated by the NCR, are included in your monthly repayment. This makes the process more affordable and ensures that the cost doesn’t add to the burden of debt.

Fee Amount Payment Terms

Application fee

Payable upfront

Administration fee

Payable upfront

Restructuring fee

Equal to the distributable amount to a maximum of:

R8,000 (single person) or R9,000 (married couple)

Paid in month 1 after proposals are drafted and submitted

Reckless lending fee

Paid in month 2 after the reckless lending assessment is written

After-care fee

5% of the distributable amount up to a maximum of R450
Paid each month after month 2 until the debt is discharged

NCT submission fee

R500 plus the current NCT filing fee
Paid in month 2

Attorney fees

No fixed cost
Paid after the attorney drafts the court application, attends the court hearing or if a credit provider does not accept the repayment plan

Differences Between Insolvency and Debt Counselling

There is a marked difference between insolvency and debt counselling.

Debt Counselling Insolvency


Debts are fully repaid albeit with a lower monthly amount
Debts are up to 80% repaid through the sale of assets and then the remainder is paid in cash over the course of 18 to 24 months

Who can initiate?

Only the debtor or an appointed representative can initiate the debt counselling process
A creditor or a debtor can initiate the insolvency process, but there must be a substantial benefit to the creditor (at least 20% debt recovery in most cases) to go through with insolvency

Estate management

You manage your estate, but you must abide by the terms of the debt counselling agreement with your creditors
A curator is appointed by the court to manage your estate

Credit access

You may not enter into credit agreements
You can enter into credit agreements with the written permission of the curator of your estate

Job restrictions

You may continue to act as a director of a company and hold key positions
You may not act as a director of a company or hold certain positions while undergoing the insolvency process

Time taken

The overall process can take up to five years or more to pay off all debts
The total process is much quicker, but your credit score is usually seriously affected for five years after the debt is discharged


Debt counselling mostly uses fixed fees as outlined above
Fees tend to be much higher, partly due to the higher amounts usually involved and the more complex legal structure

What Can Debt Counselling Do for You?

For many, debt counselling is the answer to their debt problems without going through the much more expensive process of insolvency proceedings. Once your debts are discharged, there is no further consequence, and you will usually end up with a better credit history than if you had gone through insolvency.

If you feel that you are over-indebted and your bills are piling up, talk to us today to learn more about the debt counselling process.

Do you know whether you qualify?

Find out if you’re eligible to reduce your debt and protect your belongings.

Disclaimer: This website and any information herein is not intended to be, nor does it constitute, financial, tax, legal, investment, credit, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified professional directly.

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