An essential component of achieving financial freedom is utilising effective debt management strategies. Understanding your debt and debt levels is important to effectively managing it.
While some debt is necessary, and can even be good for your financial health, too much debt can leave you overwhelmed and struggling to get to the end of the month. If you have too much debt, you may be considered over-indebted.
If you are over-indebted, you are unable to have a decent living budget and pay for all your debts with your income.
Read: Urgently need a payday loan in South Africa?
Still not sure if you’re over-indebted? Take our quiz to find out if you’re over-indebted now.
Effective debt management involves reducing your reliance on debt, and where possible, paying off that debt to improve cash flow. To do this, you will need a debt management plan.
If you are looking to manage your finances while being in debt, there are three methods you may consider:
Debt counselling, also referred to as debt review, is a debt relief measure that was introduced by The National Credit Act. All of the practices, including the fees, are regulated by the National Credit Regulator (NCR).
How does debt counselling work in South Africa?
Registered Debt Counsellors will first determine whether or not you are over-indebted. They will do this by conducting a financial assessment based on your income and your expenses.
Negotiating with your creditors is the next step. Debt Counsellors will contact your creditors to negotiate reduced interest rates on your loans.
They will then put together a restructured repayment plan where you will only pay ONE reduced monthly instalment for all your debt. Unlike a debt consolidation loan, you will not have to take out more debt.
This repayment plan will be taken to court where a court order will be granted so creditors can no longer take legal action against you.
How much does a Debt Counsellor cost?
Like any service, there are fees involved with the debt counselling process. It’s not free. Usually, your debt counselling fees are equivalent to the first two months instalments of your debt review process. This means that there isn't one fee that everyone is charged for debt counselling. This fee will be dependent on your total debt amount and how long your debt review process will be. There are, however, strict regulations in place for the maximum amounts Debt Counsellors are allowed to charge in South Africa.