More South Africans look to counselling for debt relief

Debt counselling is a long-term commitment, not an easy fix.

Enquiries about debt counselling have grown significantly in 2021. This is according to the National Debt Counsellors’ Association (NDCA).

Association chairperson Benay Sager says the increasing numbers are not unexpected given the effect of successive lockdowns on an economy that was already struggling before the pandemic.

“Loss of income, salary reductions, bonuses and incentives that have been reduced or not paid at all, combined with payment holidays coming to an end and already high levels of household debt, means people who were previously just about getting by no longer could.”

He says there is a silver lining because the increase in enquiries points to financially stressed consumers also being more aware of debt counselling as a possible solution and becoming increasingly proactive in dealing with debt issues.

There are significant benefits to debt counselling.

These include:

• Monthly repayments are reduced by renegotiating the period over which the debt has to be repaid and securing lower interest rates.

• Consumers make only one payment for all their debt obligations.

• Consumers’ assets, such as homes and vehicles are not at risk.

• Rather than having to deal with numerous creditors, they deal only with one person, the debt counsellor, who renegotiates all the debt.

• The debt is restructured to ensure that the monthly payments are affordable and there is some money left to cover essential expenses.

• In terms of the National Credit Act, the process is legally protected. Sager cautions that although there are many advantages to debt counselling and in South Africa it is effective, well run and highly regulated, consumers need to understand that it is not an instant solution.

“Debt counselling is a long-term commitment, not an easy fix. Just as it takes a while to accumulate debt it also takes time to reduce it. The important thing is to keep making regular payments and, if your circumstances change for the better, to pay more to accelerate the process.

“It is also imperative that someone undergoing debt counselling lets the debt counsellor know if their financial situation deteriorates as a result of a salary reduction or anything else that negatively affects their income.

“Something else which is important to understand is that while undergoing debt counselling, consumers cannot be granted more credit. The process is completed only once all unsecured debt is paid off and, if there is a bond, it is up to date.

“Then a clearance certificate is issued, and the consumer can again become credit active.”

Sager warns, however, that there are unscrupulous enterprises that try to take advantage of impatient consumers undergoing debt counselling and offer ‘debt review removal services’.

This violates the National Credit Act and consumers who are tempted could lose the protection from creditors that debt counselling affords.

“Debt counselling has many advantages, but consumers need to understand it is a commitment, not an instant solution. For people who stick with the plan and make their monthly payments, it works well, and the vast majority never fall back into unsustainable debt again.”

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