There are an estimated three million South Africans who could benefit from debt counselling based on their financial circumstances.

Benay Sager, chairman of the National Debt Counsellors’ Association (NDCA) says while the need is considerable and will increase as a result of stubbornly high inflation and rising interest rates, only between 100 000 to 120 000 people a year apply for debt counselling.

The reasons vary but are typically because people have limited knowledge or misconceptions about the process, are concerned about the stigma of being in debt counselling or wait until it’s too late.

“Over the past seven years inflation has eroded take-home income by nearly 40%. To make up the shortfall people take out personal loans. As a consequence, debt-to-income ratios are at or close to all-time highs. People who find themselves in a debt trap and seek help should be lauded for being responsible rather than be judged.”

Sager says that debt counselling is an effective process, especially for those who are having to borrow extra or tap into credit to finance their monthly expenses. The length of time consumers have to pay off debt is normally extended and through negotiations with creditors the interest rates are often reduced, allowing consumers breathing room on their monthly finances. The process can take a few years, so although it is not quick, the rewards can be significant.

“There has been a ninefold increase in the number of people who successfully completed debt counselling since 2016. Despite this, many who could benefit instead try to manage their financial situation themselves, or worse yet, ignore the signs. This can get them deeper into difficulty. In some cases, they risk getting their houses and cars repossessed because they were too embarrassed to speak to a debt counsellor.

Debt counselling assessments are confidential and free, and often can be done telephonically. Exploring debt counselling is not an admission of failure but rather recognising to do the responsible thing and pay back the money one borrowed.”

For the consumer, the debt counselling process should be reasonably straightforward.

Application: Contact a registered debt counsellor either via the NDCA website or by checking the list of registered counsellors on the National Credit Regulator’s website. The counsellor will then give you a free telephonic debt assessment. The assessment will determine how much debt you have, how much of your monthly income you need to pay towards debt repayments, and whether debt counselling is a potential solution. If it is, you can then decide to apply.

Protection: Once you’ve applied the debt counsellor will inform all your creditors and the credit bureaus that you have applied for an are undergoing debt counselling. This should help to alleviate a lot of stress as creditors now need to deal directly with the debt counsellor and not you.

Negotiation: As part of the process the debt counsellor negotiates reduced monthly payments on all credit agreements that fall under the National Credit Act. (This currently excludes school fees and municipal rates.) The restructuring of your debt repayments is based on how much you can afford to pay back each month. It strikes the balance between your overall debt levels, how much you can pay each month, and what the creditors are willing to accept. Since it involves simultaneous negotiation with all creditors (in some cases up to 12 creditors), it is not something most people can easily do on their own. Once these terms have been negotiated, the rearranged debt is approved by a court or the National Consumer Tribunal. This ensures the renegotiated rates are fixed for the duration of the debt counselling and creditors cannot change them or demand higher payments.

Payment: You will make one affordable payment each month via debicheck. The payment is made to an independent payment distribution agency (PDA), which then distributes the money to your creditors for the duration of the plan. Your debt counsellor nominates the PDA you will use. Debt counselling usually lasts for between three and five years, depending on the amount of debt, the arrangements the debt counsellor can negotiate with your creditors and what you can afford to pay. Should your financial circumstances improve, you can increase the monthly payment or pay a lump sum to reduce the period or end the process.

Clearance: When you successfully complete the payment plan you will receive a clearance certificate confirming all the accounts listed under debt counselling are paid up (except home loans). Home loans do not need to be fully paid but must be up to date. The debt counsellor will ensure that the credit bureaus receive the certificate.

You are entitled to support and advice during the process and all NDCA member have service teams who are available to provide this.

Its website also provides a list of commonly asked questions and the answers to these: www.ndca.org.za/how-debt-counselling-works