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Demystifying Debt Counselling

  • 7 min read

South Africa’s economy, which was struggling before the Covid-19 epidemic, is now reeling and the consequences are dire for consumers burdened with debt as well as salary cuts, retrenchments and businesses closing.

Benay Sager, chairman of the National Debt Counsellors’ Association says that for many people in this situation debt counselling could be an effective and efficient way to restructure their debt, pay off what they owe and take back control of their financial affairs.

“The tragedy is that a lack of understanding, misinformation and concerns about being stigmatised prevent people getting the help they need. As a result, too many consumers who could really benefit from debt counselling either ignore the problem or try to sort it out themselves and get deeper into difficulty.”

The National Debt Counsellors’ Association aims to better inform the public about debt counselling, challenge false assumptions and create an understanding that if consumers are in financial difficulty, getting help is a responsible thing to do.

It has compiled a list of commonly asked questions to help consumers better understand what debt counselling entails and how it works.

What exactly is debt counselling and is it something I should consider?

Debt counselling helps people repay their outstanding debt through an affordable payment plan that is agreed with their creditors. It’s a highly regulated, legally protected process that helps consumers get back on their feet.

If you are struggling to pay your debts on time or are feeling distressed about your financial situation, you could benefit from talking to a debt counsellor.

Who can apply?

Anybody who is unable to pay their debt and has a source of income can apply.

If you are married in community of property, you and your spouse are jointly liable for debt (regardless of whose name it is under) and you would need to apply jointly.

If you are married out of community of property (with an ante nuptial agreement) then you are responsible for only your own debt and your spouse does not need to apply, although they can choose to do so.

How do I choose a debt counsellor?

All debt counsellors must be registered with the National Credit Regulator. You can check if the counsellor you are considering is registered here:

Ask if the debt counsellor uses the Debt Counselling Rule Set (DCRS) system. It is the industry gold standard and benefits consumers and creditors alike by significantly lowering interest rates and the time it takes to complete the process. In some cases, interest rates can be reduced to 0% for unsecured credit such as credit card debt, personal loans and retail loans. Insisting on a debt counsellor who uses it will save you money.

Also check if the debt counsellor belongs to a professional body or association which ensures its members adhere to industry standards.

How do I apply?

The first step is to choose a reputable debt counsellor. These will have websites and you can submit a free call-back form. They will call you and do a free assessment. If the assessment indicates you are eligible and could benefit from debt counselling, you can then choose to apply.

What type of debt is included? Can I include my municipal, school or company debt?

All credit that is granted as part of the National Credit Act, such as bonds, vehicle finance, personal loans and other types of debt can be included in debt counselling. Unfortunately, municipal and NSFAS debt cannot. Nor can company or other non-personal debt.

What happens to my house and car if I apply for debt counselling?

Bond and vehicle repayments can be included, so you don’t risk your home of car being repossessed during the process.

For bond repayments, interest and payment amounts are reduced for the term of the debt counselling process. Once completed, the interest and repayment amounts revert to their original values.

How do the repayments work and what does it cost?

You will make one affordable payment each month, based on what you can afford. This is paid to an independent Payment Distribution Agency (PDA) – overseen by the National Credit Regulator – which distributes money on your behalf to the creditors included in the debt counselling plan. The debt counsellor usually nominates the PDA.

Debt counselling is highly regulated, and all the fees are included in the single payment. The National Credit Regulator sets the fee guidelines. The system is efficient with 90% of the payment going directly to creditors.

How long does debt counselling take?

It usually lasts between three and five years, depending on the amount of debt, the arrangements the debt counsellor negotiates and what you can afford to pay each month.

All reputable debt counsellors should have a client-service team available throughout the process to offer advice, support and communicate with creditors.

Can I still apply for credit while under debt counselling?

No. Only once you have completed the programme and receive a clearance certificate can you again apply for credit. Then it is advisable to draw up a realistic budget and discuss this with the debt counsellor or financial advisor before applying.

Can I use my credit card while under debt counselling?

Credit cards cannot be used as credit card debt becomes part of the debt repayment plan. Once you’ve completed debt counselling you can apply for a new credit card.

Will I be blacklisted if I apply for debt counselling?

There is no such thing as blacklisting. When people get behind on their payments, this negatively affects their credit score. Lenders and other financial-service providers are reluctant to lend or do business with people who have poor credit scores as they are considered higher risk – this is the basis for the misconceptions about blacklisting.

If you apply for debt counselling, you will be registered with credit bureaus via the National Credit Regulator’s debt help system as being under debt counselling and will not be eligible for new credit.

When you have completed the process and received your clearance certificate you will again be able to apply for credit.

If I’ve successfully completed debt counselling will I be able to get credit again?

When you have paid up all your accounts – except your home loan, which must be up to date – a reputable debt counsellor will use the paid-up letters from creditors to create a clearance certificate. This, along with the paid-up letters, is then sent to all the major credit bureaus. The debt counsellor then updates your debt-review status to ‘clearance’ on the National Credit Regulator’s Debt Help System. Once these steps are completed you will no longer be listed as being under debt counselling and will be eligible to access new credit.

Can I cancel debt counselling?

It is not possible to unilaterally cancel the debt counselling process.

You can, however, choose to make direct payments to creditors, although this Is not advised. Doing this means you can lose the protection that the debt counsellor provides as well as their expertise and support and could fall behind on your payments.

Without the support of a debt counsellor people often struggle to meet the terms agreed with the creditors. If this happens it can have long-term and serious consequences for your future financial security.

For more information about debt counselling and the National Debt Counsellors’ Association visit: