What is Debt Counselling
Are you over indebted? Struggling to pay off your loans and meeting your monthly obligations?
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.
What is over-indebtedness?
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.
How does Debt counselling work?
Once declared over indebted and accepted into debt counselling the following will happen:
- You will be protected from legal action for a period of 60 days from the day of application and after the arrangement has been concluded, as long as you pay according to the new arrangement;
- All your creditors will have to stop calling you and will liaise with your debt counsellor;
- You will be listed with the Credit Bureau as being under debt counselling.
How can Debt counselling help you become debt free?
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.
Who is in charge of debt counselling in South Africa?
Debt counselling is governed by the National Credit Act and is overseen by the National Credit Regulator (NCR)
Who offers debt counselling in South Africa?
There are multiple companies or people that are registered as Debt counsellors in terms of the National Credit Act.
How do you know if they are registered Debt counsellors?
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.
Are there any hidden costs or applicable fees?
Yes – the service is not free, there are recommended fees laid down by the National Credit Regulator (NCR) and the fee guidelines as well.
Where and how should the money be paid?
You would arrange that your first and second payment to be taken by your debt counsellor, by means of a debit order.
Who is responsible for payment distributions to credit providers?
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.
What are the rights and responsibilities on debt counselling?
|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|
Is there any other information that a consumer should be aware of if they are under debt counselling?
- You may not apply for any further credit agreements.
- You should always inform the debt counsellor of any changes in financial circumstances, good or bad.
Is debt counselling good or bad?
- Debt counselling is good, should a consumer find themselves in a situation where they can no longer satisfy their monthly obligations in a timely manner /should the consumer have no money left after paying for their monthly debt repayments.
(Over indebted/on the verge of becoming over-indebted)
What is the overall process of debt counselling?
Assisting over-indebted clients with all their monthly debt repayments, reducing it by 60%, 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), they will then be issued with a clearance certificate.
What are the advantages and disadvantages of being under debt counselling?
|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|
How long does the whole debt counselling process take from start to finish?
Debt counselling has a period ranging from 60 days to 5 years- depending on the balances of the consumers accounts.
Can you cancel once under debt counselling?
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.
Is debt counselling better than consolidation?
– 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.
What questions would they ask before going for debt counselling?
- How are you finding the management of your finances?
- Have you skipped/missed any payments in the last 6 months
- Do you have enough money left to cater for your daily living expenses, after paying your creditors?
- Have you applied for a loan recently and you were rejected?
- Did you receive any harassing phone calls from your creditors in the last 6 months?
- Do you ever need to borrow money to cover your expenses?
What documents would they need from me?
- Id documents
- Marriage certificate(If married)
- 6 month bank statement
- Proof residence
- Creditor statements
What would my monthly repayment be when under debt counselling?
–50% less than your current short term debt installments
–30% less than your current assets installments
Who would you deal with when entering debt counselling?
A qualified debt counsellor
If debt counselling is the solution for you, you need to get in touch with us now.
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.