As the South African economy is going through testing times, with increases in electricity, petrol and food costs, people’s incomes have lost its purchasing power, leading to high reliance on credit for day to day consumption. This has tipped many consumers over the financial edge and more and more consumers are turning to debt counselling to help them manage their finances.
28 November 2012
October 6, 2007
By Laura du Preez
Debt counselling is expected to offer people who are over-indebted a way to negotiate a more affordable repayment plan with their creditors. The process is provided for in the National Credit Act (NCA), which became fully effective on June 1 this year, and applies to credit agreements entered into before and after that date.
If you are struggling to pay your debts, you can approach a debt counsellor and ask him or her to review your situation.
Alternatively, a credit provider, such as your bank or a retailer, may refer you to a debt counsellor if you fail to meet your repayment obligations.
There are no restrictions on who can use debt counselling – anyone from any income group and who owes any amount of debt can apply for debt counselling.
Debt counsellors are entitled to charge you an upfront fee of R50 plus VAT for an application to have your debt reviewed.
Most also charge you substantially more for an initial review of your debts, and they may offer to review your debts on an ongoing basis, for which they will also charge a fee. But as yet there are no set amounts that debt counsellors may or may not charge for initial and ongoing reviews.
The National Credit Regulator (NCR) plans to help lower-income earners by paying their debt counsellors’ fees.
Before determining whether or not to accept your application to review your debt, a debt counsellor must consider your debts and financial circumstances to determine whether you are over-indebted. The NCA describes over-indebtedness as a situation in which you are or will be unable to meet all your debt obligations timeously.
A debt counsellor will investigate your existing income and your income-earning prospects, and all your current financial obligations.
Once a debt counsellor has accepted your application, he or she will inform all your creditors and every registered credit bureau that you have applied for debt counselling. You will not be able to access any further credit until your debts have been repaid. You will even have to cut up your credit and store cards.
The debt counsellor will then consider your debts and financial circumstances to determine what you can afford to repay each month, and will enter into negotiations with your creditors to restructure your debt.
If your creditors agree to the repayment proposal put forward by the debt counsellor, the counsellor will apply to the National Consumer Tribunal for a consent order for the repayment plan.
If your all creditors do not agree to the plan, the debt counsellor will take the plan to a magistrate’s court, and the court will have to decide what is a fair repayment plan. In this case you could face further charges for the cost of hiring lawyers to represent your case in court.