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Debt counselling | Everything you need to know

Debt counselling meaning:

Debt counselling, also known as debt review, is a legal process and debt relief method in South Africa that was introduced by The National Credit Act (NCA). It’s for over-indebted South Africans who are struggling to pay all their debts.

Is debt counselling a good idea?

Debt counselling is a great idea for anyone whose income can’t keep up with their monthly debt obligations and the cost of living expenses. 

Debt counselling is also a great idea if you are:

  • Struggling to fall asleep at night because you keep thinking about how you’re going to pay everything, get your children to school, have a packed lunch for them, and put dinner on the table, debt counselling is a very good idea for you. 
  • Borrowing money to pay your debts. 
  • Skipping debt repayments or making late debt repayments. 

Read: How do you know if you’re over-indebted? Take our quiz!

How does debt counselling work in South Africa?

  1. You apply for debt counselling with a registered Debt Counsellor or debt counselling company. 

Moku tip: Before agreeing to sign up with any debt review company, check that they are registered on the National Credit Regulator’s website. 

Meerkat’s CEO and Founder, David O’Brien is a registered Debt Counsellor with the NCR. You can confirm this here. 

For a complete list of all registered Debt Counsellors in South Africa, follow this link.

When you apply for debt counselling in South Africa, you should be issued with form 16.

2. After filling out this form, you will then undergo a financial assessment with a Debt Counsellor. They will determine whether or not you are over-indebted. 

This is done by looking at your income and your different monthly expenses that you provided the Debt Counsellor with. 

3. If you are found to be over-indebted, a Debt Counsellor will work out a repayment plan for you that prioritises not only paying off your debt, but having enough for day-to-day living expenses too. Say goodbye to sleepless nights because of debt. 

4. This repayment plan will then be passed over to lawyers to ensure that you have a court order in place regarding the repayment plan. 
  • This is beneficial to you because it means that your assets (your car and your home) are protected and legal action cannot be taken against you.
  • Once you have accepted your repayment plan, the credit bureaus are contacted, and your credit profile is flagged as being under debt review. 

With Meerkat, you aren’t alone. We will guide you every step of the way, even after you’ve signed up for debt counselling. Personalised, friendly support is what we specialise in. 

Meerkat counselling review

Debt review review at Meerkat

During this time, your creditors will also be contacted to negotiate lower interest rates on your loans. This negotiation can end up saving you money in the long-run because a higher interest rate can mean a bigger capital debt amount. 

Your creditors are also then given the new repayment plan so they are fully aware of the new payment arrangements. 

5. You make a single, reduced monthly payment for ALL of your debts. This money is distributed to all of your creditors by a registered Payment Distribution Agency (PDA). 

  • Meerkat partners with South Africa’s leading PDA (Hyphen) so you can rest assured that your money is safe and well-taken care of. 

6. Once you have paid all your debts, you will be issued with a Debt Review Clearance Certificate and the credit bureaus will be informed that you have successfully completed the process. They will then remove the debt review flag from your profile. 

Read: What is a debt review clearance certificate?

How does debt counselling affect your credit score?

Debt counselling does not negatively affect your credit score. In fact, it’s a way of rehabilitating your credit score. By undergoing debt review, you show that you can consistently make your debt repayments on time. This is beneficial for your credit score. 

How do you check if you’re under debt review?

A simple look at your credit report will reveal if you are under debt review or not. If you are, there will be a debt review flag on your credit report. The image below will give you an idea of what this could look like:

debt review flag on your credit report

⇢ You can get a free credit report here!

What is an example of debt counselling?

The Dlomo family is a married couple with two children that signed up for the debt counselling process at Meerkat. 

They approached Meerkat with a total debt amount of R591 157 and a monthly installment of R41 000. 

Meerkat was able to successfully reduce their monthly debt installment to R18 000, saving them R23 000. 

One of our expert Debt Counsellors was able to negotiate with their creditors and get their average interest rate on their loans from 36% to a new interest rate of 8%, saving them money on their total debt amount. 

Read: A young family went from over-indebted to debt-free thanks to Meerkat

What are the disadvantages of debt counselling?

A common disadvantage that frightens many people is that undergoing debt counselling means that you won’t be able to apply for more loans while you’re undergoing the process. 

This means that if you apply for a loan while under debt review, a credit lender will check you credit report and you will immediately be denied because of the debt review flag on your credit report. 

The reason for this is simple: you cannot get out of debt by creating more debt. While a loan will provide short-term relief because you can pay for whatever it is you really need to pay for, it just adds to your debt burden.

The reality is, if you cannot afford to pay all your debts and if you cannot afford to buy essential items like electricity and groceries, more debt (a loan) will only drive you into further debt. 

Not having access to credit for a short period is scary, but permanently being stuck in a crippling debt cycle is even scarier. 

Can I buy a house after debt counselling?

Once you have successfully completed the debt counselling process, you will be able to buy a house after. 

To buy a house, you will have to slowly take out a small amount of credit and show that you can consistently pay for this account. For a home, a good idea is to show that, for a year, you can consistently make these payments. 

Who pays the Debt Counsellor?

The consumer (you) pay the debt counselling fees. What’s really beneficial for you is that these fees are all regulated. This means that a registered Debt Counsellor or debt counselling company cannot charge you more than the prescribed fees set out by the National Credit Regulator (NCR). 

Debt counselling fees 

Your monthly repayment for the first two months is usually the equivalent to your debt counselling fees. This monthly repayment will be based on your current financial situation, including your total debt amount and income, as well as the time it will take to complete the entire process.

See the image below for an outline of fees, and what you can expect before signing up for debt counselling at Meerkat. A reminder that these fees are aligned with the guidelines put forward by The National Credit Regulator. 

debt counselling fees as outlined by the ncr

How do I remove my name from debt counselling?

To leave the debt review process, you need a debt review clearance certificate. The only individual who can issue a debt review clearance certificate, is a registered Debt Counsellor. 

Meerkat can assist you with the administration of this debt review clearance certificate. You must, however, have paid up all your debts, or the debts that you haven’t paid, must have prescribed. If you’ve paid up all your debts, and the only debt you haven’t paid is your home loan, you also qualify for a clearance certificate. 

Let's Get You Cleared >>

Can I cancel debt review early?

No, you can’t. Since 2022, you cannot leave the debt counselling process early. This is even prior to being declared over-indebted. Practically this means that once you have applied for debt counselling, you cannot leave the process until you have paid all your debts, other than your home loan, in full.  

How long does debt review stay on your name?

This depends on how much debt you have and how much you are able to pay towards this debt each month.  The longest time an individual may undergo debt counselling is 5 years. 

The key role-players in debt counselling

  • Debt counselling company: For example Meerkat.
  • The specific Debt Counsellor who is handling your application. 
  • National Credit Regulator: This body regulates the South African credit industry. They are there to protect consumers. All debt counselling practices are regulated by the NCR. 
  • Payment Distribution Agency (PDA): These are the payment distributors who handle your money. Your money does not go directly to a Debt Counsellor. Instead, it is paid to a PDA, who then distributes your money to your creditors. 

Moku tip: Your debt counselling company should be partnered with a reputable PDA for this process to run smoothly. You should also never be paying money directly to your Debt Counsellor.

 

 

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