Debt counselling – this is what you are letting yourself in for

South African consumers, even those who earn high salaries, are struggling to pay all their debts. The household debt-to-income ratio is projected to hover around an astounding 65% in 2024, with South Africans spending up to 75% of their income on servicing debt, according to the South African Reserve Bank (Sarb).

Therefore, many consumers who get a phone call from someone who offers help with reducing their debt will fall for this scam to place them under debt review without their knowledge. It is important to know exactly what debt counselling is and what the implications are.

According to the National Credit Regulator (NCR), the debt counselling process is intended to assist over-indebted consumers who are struggling with debt, by offering:

• Budget advice
• Negotiations with credit providers for reduced payments
• Restructuring of their debt
• Assessment of income and expenses.

ALSO READ: Debt index shows consumers are battling with debt and stagnant incomes

When are you over-indebted?

You are over-indebted if you cannot meet your monthly obligations to credit providers. The NCR says you are over-indebted when:

• Your monthly expenses are more than your monthly income or salary
• You borrow money to pay other debts
• You use your credit card and/or overdraft facility to pay debts, buy food, pay for school fees and other necessities and
• You skip payments on some accounts in order to pay others.

Who can apply for debt counselling?

Consumers who are employed and still struggling to pay their monthly debt obligations can apply for debt counselling. Those who are married in community of property must complete a joint application.

ALSO READ: Don’t fall for calls to help with your debt – it could be debt counselling

Will you be negatively listed (‘blacklisted’)?

If you are under debt review a debt counselling indicator will be placed on your credit bureau profile. The NCR says this is not negative, but an indication that you have been declared over-indebted and placed under debt counselling.

Can you still get further credit while under debt counselling?

No, the NCR says if you are under debt counselling you cannot obtain more credit.

How long do you have to be under debt review?

You will be under debt review until the debt counsellor issues a clearance certificate when:

• All your short-term debts, such as personal loans, retail accounts and credit cards are paid in full
• Your bond does not have to be paid up, but your payments must be up to date.

The benefits of debt counselling

• Helps you to pay off your debt
• You do not have to borrow money to pay your debt
• Your assets are protected
• No more phone calls from your creditors
• Affordable instalments
• There is no limit in terms of your debts to go under debt counselling

ALSO READ: How to start getting rid of your debt

Your rights and duties

Your consumer rights when you are under debt review include:

• to apply for debt counselling
• to know the full cost of debt counselling when you apply for debt counselling. This includes a full written breakdown of all fees.
• to get regular updates on the progress of your debt counselling application from the debt counsellor
• to choose how you make monthly payments to credit providers while under debt counselling
• to transfer from one debt counsellor to another.

However, the NCR points out that along with your consumer rights, you also have these duties to:

• give full and honest or correct information when applying for debt counselling
• to confirm a debt counsellor’s details or verify that the debt counsellor is registered
• make sure that you fully understand the full cost of debt counselling fees before signing the application
• follow up and request feedback from the debt counsellor regarding the progress of your debt counselling application
• ensure payments are made monthly and proof is provided to the debt counsellor
• make sure that the reasons for transferring to another debt counsellor are valid to avoid abusing the process.

ALSO READ: Know your rights and responsibilities regarding credit agreements

Is debt counselling the same as debt admin­istration or debt consolidation?

The NCR says it is not the same.

Debt administration Is a legal debt relief measure, which aims to help you to pay off your debts. If your total debt is less than R50 000, you can apply for debt administration as this will help you pay off your debts in reduced monthly instalments. This process is governed by Section 74 of the Magistrate’s Court Act and not by the NCA.

With debt consolidation, you can apply for a single new loan when you have different debts or loans which will combine all the amounts into one single amount. This new loan will pay off your other debts and you will then only be responsible for paying one monthly instalment for the new loan instead of many different instalments.