By Jessie Taylor
Faced with rising interest rates and high inflation, many South Africans are seeking help to manage their growing debt burden. One of the options, which is provided by law to protect consumers, is debt counselling. This has become increasingly popular among overly indebted South Africans to help achieve financial stability.
South African consumers are spending a significant amount of their take-home pay to service debt each month, according to DebtBusters’ Q1 2023 Debt Index.
“Before applying for debt counselling, on average, consumers were spending 65% of their take-home pay to service debt,” said Benay Sager, Head of DebtBusters.
He added that debt counselling has proven an effective process, with the number of people successfully completing debt counselling having increased ninefold since 2016.
Debt counselling is one of the debt relief measures provided for in the National Credit Act, which intends to assist over-indebted consumers struggling with debt. It offers budget advice, negotiation with credit providers for reduced payments and restructuring of debts.
Consumers struggling to meet their monthly debt obligations qualify to apply for debt counselling if they have a distributable that can be used to offer reduced payments to their credit providers.
The debt counselling must be offered by a service provider registered with the National Credit Regulator, and it is a regulated, legally protected process that helps consumers gain financial stability.
Debt counselling assists consumers in repaying their debt by negotiating an affordable repayment plan agreed on by all creditors. The repayments are consolidated into one affordable repayment 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 the funds to all creditors. The PDA is usually nominated by your debt counsellor.