Debt Counselling in South Africa Explained
What is debt counselling?
Debt counselling is a process that gives South Africans who are struggling to make their monthly debt repayments, a chance to regain financial control and become debt-free.
What is the difference between debt counselling and debt review?
There isn't a difference between debt counselling and debt review. They are different words that refer to the same process. Because of this, we will use both terms in this blog post.
How does debt counselling work?
- If you are struggling to make your monthly debt repayments, you can apply for debt counselling with a registered Debt Counsellor or debt counselling company.
- This Debt Counsellor will determine whether or not you are in fact over-indebted. They will do this by investigating your current income versus your monthly debt obligations and expenses.
- If you are found to be over-indebted, the Debt Counsellor will put together a repayment plan that will be approved by a court order to protect you from any legal action been taken against you.
- This repayment plan will include the time your debt counselling process will take and the amount you will pay for your debt each month. This new amount for your debt is one reduced monthly installment that you will pay for ALL your debt obligations.
*The reason this will be reduced is because registered national debt counsellors can approach credit providers on your behalf and request reduced interest rates on your loans.
5. Once you have completed the debt counselling process you will be issued with a Debt Clearance Certificate.
This lets your creditors and the credit bureaus (companies that issue credit reports) know that you have successfully completed the debt counselling process.
You can now start applying for credit again!
Who can apply for debt counselling?
- Debt Counselling is available for anyone who is struggling to meet their monthly debt obligations.
- It's important to note that this process is a method of paying off your debts— you can't just get rid of them. Because of this, you have to have a source of income to pay these debts. If you want to undergo debt review, you have to be employed.
FYI: Consumers married in community of property must jointly apply for debt counselling.
Does debt counselling affect your credit score?
There is a common misunderstanding that being under debt review will negatively affect your credit score.
This is not the case. Debt counselling can help your credit score. When you enter the debt counselling process, creditors can no longer add any further negative information to your credit profile because you will now be under the protection of the National Credit Act.
Your Debt Counsellor will make sure your creditors are aware that you are under debt review and this means they can no longer take any legal actions against you. After the debt review process has been completed, you will receive a clearance certificate and the credit bureaus will be notified. This means that any details of judgments or arrears are cleared.
Is debt counselling a good idea?
Debt counselling advantages:
- When you are under debt review, creditors cannot take any legal action against you. In fact, creditors are not even allowed to contact you, they may only be in touch with your Debt Counsellor.
- There is no permanent record of having undergone debt counselling, meaning that once you have successfully made it through the process, you are able to walk away without anyone holding it against you in the future. Banks won't discriminate.
- Your repayment plan will take into account your basic needs AND your debt obligations. Your Debt Counsellor will make sure that you are able to live throughout this process and will budget for your basic needs, meaning you will never pay more money than you can reasonably afford.
- There is only one monthly repayment to be made. This makes your life simple and you can rest easy knowing you are playing your part fairly in the process and that you are well on your way to financial freedom.
- A Debt Counsellor will recommend ways of cutting costs and saving money. The financial expertise of a Debt Counsellor can bring enormous savings and positive changes to your finances.
Debt counselling disadvantages:
- You are not allowed to take out more credit while undergoing debt counselling. This means you cannot apply for new loans during this process.
*If you are serious about getting out of debt, not having access to more credit during this process is part of taking charge of your finances and becoming financially healthy again.
Remember, this process won't last forever and you will be able to apply for credit again. For now, this is your best shot at improving your chances of actually securing a loan in the future. The reason? Debt counselling is a way to help you improve your credit score too.
- Debt counselling fees are set by law and will be worked into your payment plan so it does cost a little bit of money.
- Paying off your debts might take longer if you're making smaller monthly payments.
Overall, the debt counselling pros outweigh the cons, but it is very important to remain fully aware of all pros and cons before embarking on the debt review journey.
How long does debt counselling last?
The time debt counselling takes is calculated based on the amount of debt you have. The maximum time period an individual can be in Debt Review is 60 months.
Is debt counselling expensive?
The Debt Counsellors' fee is taken from the first two repayments of your debt review process. Creditors have agreed that by negotiating a reduction in interest rates the first two installments are paid to the counsellor.
What's important to note is that all fees are regulated by the NCR and we follow the agreed industry pricing. This means that you will not be scammed if you sign up with Meerkat's debt management (debt counselling) solution.
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Meerkat is registered with the NCR (National Credit Regulator – NCRDC2613). We understand that life happens, and you can start to fall behind on your debt repayments. We can help you regain financial control and walk the journey with you to becoming debt-free. As a team, we’re looking out for you.
We also offer competitive credit life cover to protect you and your family if you die, are retrenched, become disabled or suffer a severe illness.
Do you know how much you are paying on your current loans for cover? We may be able to replace your existing cover where it makes sense to do so.
We will also kickstart an emergency savings fund as part of your debt management plan. This ensures you have funds available for when life happens. Don't delay, get started today!
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