Debt counselling is one of the debt relief measures available in South Africa, introduced by the National Credit Act (NCA) in 2007. Debt counselling is intended to assist over-indebted consumers struggling with debt through budget advice, negotiation with credit providers for reduced payments and restructuring of debts.
This is a great process for anyone with an income and struggling to meet their monthly obligations.
Over-indebtedness occurs when a consumer is unable to repay all financial obligations in a timely manner and/or where total debt repayments exceed net income (“take-home pay”) after living expenses have been paid for.
Once declared over indebted and accepted into debt counselling the following will happen:
While you are under debt counselling you will not be allowed to get any further credit until you are issued with a Clearance Certificate- once you have satisfied your obligations as per the Court or Tribunal order and in line with the National Credit Act.
Debt counselling is governed by the National Credit Act and is overseen by the National Credit Regulator (NCR)
There are multiple companies or people that are registered as Debt counsellors in terms of the National Credit Act.
In terms of the NCA, debt counsellors must be registered with the regulator. To verify a debt counsellor’s registration number – known as an NCRDC number – phone the NCR call centre on 0860 627 627.
Yes – the service is not free, there are recommended fees laid down by the National Credit Regulator (NCR) and the fee guidelines as well.
|Debt Counselling Fee Guidelines||Approved Fees|
|1. A Debt Counsellor may receive the following fees in respect of consumers who have applied for debt counselling:|
|1.1. An application fee, limited to the amount prescribed in terms of Schedule 2 (2) of the Act, recoverable directly from the consumer upon receiving an application for debt review;||R50|
|1.2. A rejection fee of R300.00 (excluding VAT) in respect of consumers whose applications have been rejected in terms of section 86(7)(a);||R300 (excl vat)|
|1.3. A restructuring fee of the lesser of the first instalment of the debt re-arrangement plan in respect of a consumer whose applications have been accepted in terms of 86(7) (b) or 86(7) (c).|
|Maximum allowable fee for a Single Application (Once off)||R6000 (excl vat)|
|Joint Application (Once off)||R6000 (excl vat)|
|1.3.1. 100% of the fee is payable at the first instalment.||Yes|
|1.4. Should a Debt Counsellor fail to submit proposals to Credit Providers or refer the matter to a Tribunal or a Magistrate Court within 60 business days from date of the debt review application the Debt Counsellor has to refund 100% of the fee paid by the consumer (excluding the application fee).||100%|
|1.5. A monthly after-care fee payable to the DC||5% up to a max of R400 (excl VAT) for the first 24 months, thereafter reducing to 3% to a max of R400 (excl VAT)|
|1.5.1. Payment of the monthly after-care fee is to commence in the 2nd month after the amount in 1.3.1 above has been paid.||Yes|
|1.6. Should the consumer withdraw from the process after completing stages 1.3 above, a fee equal to 75% of the restructuring fee as per 1.3 above is payable by the consumer.||Yes|
|1.7. Legal Fees||A legal fee for a consent order of R750. Any additional legal fees to be negotiated separately with the consumer and the DC must be able to produce pro-forma invoices.|
You would arrange that your first and second payment to be taken by your debt counsellor, by means of a debit order.
Once accepted under debt counselling you will pay one installment which will then be distributed to your credit providers by a Payment Distribution Agent (PDA). The PDA is also responsible for the provision of monthly statements to consumers and payment schedules to debt counsellors, employers and credit providers, as well as attending to queries from the respective parties.
|1) Consumers have a right to apply for debt counselling||1) Consumers have a responsibility to ensure full and correct financial disclosure at time of application|
|2) Consumers have a right to request for, and be provided with, reasons if the application for debt counselling is rejected||2) Consumers have a responsibility to make monthly repayments as agreed with the debt counsellor|
|3) Consumers have a right to a written disclosure of fees applicable prior to applying for debt counselling||3) Consumers have the responsibility to follow up on monthly payments made to the PDAs|
|4) Consumers have a right to a full disclosure of the debt counselling process prior to applying for debt counselling||4) Consumers have a responsibility to ensure that they understand the process, applicable fees and implications|
|5) Consumers have a right to receive distribution statements from their debt counsellors and PDAs on a monthly basis||5) Make payments regularly to the debt counsellor|
|6) Right to be legally protected||6) Notify the debt counsellor of any changes in circumstances financially|
|7) Right to pay an affordable reduced instalment|
|8) Right to be issued with a clearance certificate once all short term debt has been paid up|
|9) Right to be updated with all changes happening during the process|
|10) Right to statements of payments being distributed|
(Over indebted/on the verge of becoming over indebted)
Assisting over indebted clients with all their monthly debt repayments, reducing it by 50%, making it much more affordable to pay on a monthly basis. The consumer has the responsibility of making regular monthly payments to avoid legal action being taken. The debt counselling process has a maximum period of 60 months within which they need to repay their debt ASAP. When all short term debt has been paid and the consumer indicates the ability and willingness to pay off their assets (Home loan/vehicle), they will then be issued with a clearance certificate.
|Legal protection from credit providers||Cannot incur any further debt|
|Paying a reduced amount||Consumer is liable for the fees of the DC, attorney and any fees the PDA may charge|
|No harassment from credit providers||Consumer cannot cancel from debt counselling whilst he/she is still over indebted|
|Clearance certificate will be issued asap all debt has been paid up|
Debt counselling has a period ranging from 60 days to 5 years- depending on the balances of the consumers accounts.
Once a consumer has been found to be over indebted it would not be advisable to cancel the rehabilitation, but to complete it.
If the consumer has a lump sum of money, it would be advisable to inform the debt counsellor so the funds can be distributed accordingly.
– Yes / no
Yes- there is no interest added on your debt, you will be paying off your existing debt instead of incurring more debt. Once all your debt has been cleared, you will be debt free.
No- The consumer will have one installment for all his/her debt repayments however they can still apply for debt, which might cause them to be over indebted again.
–50% less than your current short term debt installments
–30% less than your current assets installments
A qualified debt counsellor
Steps Taken When You Go Under Debt Counselling:
Are you over indebted and struggling to pay off your loans, as well as meeting your monthly obligations?
Firstly, your Debt Counsellor will request that you present them with details of your month-to-month expenses and debt commitments. Copies of your payslip, identity document and recent statements that show the total amount of your outstanding debt.
The Debt Counsellor will then do an initial review to check if you’re over-indebted and prepare for a session with you. This can be done either while face-to-face or over the telephone.
During the session, the Debt Counsellor will check your budget and your current debt commitments. A new budget will be agreed upon to resolve the quantity needed for debt compensation. At this stage, the Debt Counsellor will also provide you with important pointers and information as to what costs will be involved.
The Debt Counsellor will contact all of your credit providers and the Credit Bureaus to substantiate your debts. Therefore you will then be listed as being under Debt Counselling and the listing will remain, until you repay the money owed in full. After which, the listing will be removed. The Debt Counsellor will negotiate with your credit providers to restructure your debt repayment plan to make it more affordable and manageable for you.
If your credit providers agree to the proposed debt compensation plan, it will be made into an order by the magistrate’s court, called a Consent Order. However, if any of your credit providers refuse to settle for the proposed debt reimbursement plan, your Debt Counsellor will refer the matter to the magistrate and request that a new order be made that your credit providers agree to and that adheres to the National Credit Act.
Your Debt Counsellor will provide you with an alternative debt reimbursement plan, which can be submitted to a Payment Distribution Agency (PDA). The purpose of this is to allow you to pay a single installment, on a monthly basis, towards all of your debts. This is then paid to all of your various credit providers on your behalf. This arrangement will continue until the entire amount of money owed has been paid in full.