Sky-high interest rates and a few more hikes on the horizon are leading an increasing number of people to seek the advice of debt-counsellors. Many hope the counsellor will wave a magic wand and turn their hefty payments into a thing of the past. This is, however, not the case as the review process does not make debt disappear, but merely extends the period over which it is paid.

Another misconception is that the cost of debt counselling is just R50. There are a number of fees set out by the Debt Counselling Association of South Africa. The R50 fee that was widely advertised covers the initial application that establishes you as a candidate for counselling or not.

Once it has been established that you can be placed under review the debt counsellor may receive the following amounts in respect of consumers with an individual gross income of more than R2500 per month or household income of more than R3500 per month:

  1. A R50 application fee, recoverable directly from the consumer upon receiving an application for debt review.

  2. A restructuring fee of the lesser of the first instalment of the debt re-arrangement plan or R3000 (excluding VAT). Should a joint application be required for a couple the fee can be increased to R4000 (excluding VAT).

    The fee is payable as follows:

    • The whole fee is payable at the first instalment. If the counsellor instructs you to repay R3000 per month to your creditors the first instalment will go to him or her as a fee for the restructuring, administration and negotiating with creditors.

  3. If the creditor opposes the application the counsellor is forced to seek the services of an attorney who then has to make a court application. These legal fees may also be recovered from the client. The second instalment of the revision amount may be used to pay the attorney. It therefore sometimes happens that the consumer only starts to repay his or her creditors by the third instalment.

  4. A monthly after-care fee of five percent (excluding VAT) of the monthly instalment of the debt re-arrangement plan up to a maximum of R300 (excluding VAT) for a period of 24 months, thereafter reduced to three percent (excluding VAT) of the monthly instalment to a maximum of R300 (excluding VAT) for the remaining period of the debt re-arrangement plan.

  5. The client must pay a fee equal to 75 percent of the restructuring costs should he or she withdraw from the process after agreements have been put in place with the creditors.

  6. Legal fees, if and when they occur, may be recovered from the consumer provided the amount of such fees are disclosed up-front and agreed to by the consumer in writing.

As you can see debt counselling does not come cheap. The cost, however, is definitely warranted.

It takes many hours and reams of paperwork to put a debt restructuring plan in place. In addition, the counsellor becomes your advocate throughout the entire process and for as long as you are under review.

There have been reports of unscrupulous counsellors charging exorbitant fees and asking for cash up front. If this is the case you can report them to the National Credit Regulator (www.ncr.org.za).