South Africa is currently experiencing a severe debt crisis, with many individuals and households unable to meet their financial obligations. According to CEIC, South African household debt reached R2.83 trillion in June 2023. This is 40.9% of the national gross domestic product (GDP).
Debt counselling is a recommended solution to help people regain control of their finances and pave the way for a debt-free future. It is a process that assists people who are over-indebted by providing them with a strategic plan for debt management.
MSD Consulting is a registered South African debt counselling company with a team of experienced professionals who specialise in providing debt counselling services to people in need. Our primary goals are to reduce debt obligations, protect individuals from legal action by creditors, and assist them in achieving financial stability.
It is important to note that debt counselling in South Africa is governed by the National Credit Act (NCA), which establishes a legal framework to protect consumers and ensure fair practises in the debt counselling industry. Section 86(7) of the NCA makes provision for a registered debt counsellor to make an application to the Magistrates Court to have a client declared over-indebted.
Individuals must meet certain requirements to be eligible for debt counselling. To demonstrate their ability to repay debts, they should be employed or have a regular source of income. They must also be classified as over-indebted, which means that their monthly debt repayments exceed their monthly income. Debt counsellors carefully consider these criteria to ensure that counselling is an appropriate option for their clients.
How the debt counselling process works
Step 1: The process begins with an initial assessment, in which a qualified debt counsellor thoroughly examines the client’s financial situation. This evaluation thoroughly examines the client’s income, expenses and debts.
Step 2: Following the completion of the initial assessment, the debt counsellor assists the client in submitting a debt review application to the National Credit Regulator (NCR) for approval. The debt counsellor will also advise the creditors that they are in the process of assessing the client to determine the extent of over-indebtedness.
A registered debt counsellor will need the following documents:
- A copy of your ID
- A recent payslip
- Proof of address
- A three-month bank statement
- Marriage certificate, if applicable
- Proof of basic living expenses
- A completed and signed Form 16
Step 3: Following the initial assessment, the debt counsellor will determine whether the client indeed requires debt counselling. They will create a customised debt repayment plan that is tailored specifically to the client’s financial circumstances.
The debt counsellor acts as a go-between for the client and their creditors, negotiating lower interest rates and more manageable monthly payments. These negotiations aim to make the client’s repayment plan sustainable and affordable.
Step 4: The debt counsellor will appoint an attorney who will issue an application to the court in order to make the new payment arrangement an order of the court. This means that both the client and creditors are protected by a court order. When the repayment plan is approved by the court, it becomes legally binding for all parties involved.
The debt counsellor then assists the client in carrying out the plan, ensuring that payments are made to creditors on a regular and timely basis. The new reduced instalments that were agreed between the debt counsellor and the creditors are paid in weekly, fortnightly or monthly payments by the client.
Step 5: The client continues to make the payments, as per the payment arrangement, through a payment distribution agent until the debts are paid up. As soon as the client has paid up all the debts, the debt counsellor will issue the client with a clearance certificate.
This certificate will include paid-up letters from all creditors and the credit bureau will be updated to reflect that the client has completed the process. The client will become creditworthy again and there will be no record of the client being under the debt review process anywhere on the credit bureau.
Step 6: The debt counsellor will help the client with a strategic way forward to ensure that the client does not end up in the same situation again. Budgets, savings plans, and good versus bad credit are all part of the exiting process and the client is advised on how to build a good credit record for a sustainable future.
Benefits of debt counselling
Individuals who are in debt can benefit from debt counselling in a variety of ways. For starters, it offers immediate relief by easing the burden of debt repayments, making them more affordable and manageable. Debt counselling also shields clients from creditors’ legal actions, such as asset repossession or garnishee orders.
Completing a debt counselling programme can also improve your credit score. Individuals who make consistent repayments under the repayment plan may be viewed favourably by creditors, potentially leading to improved creditworthiness in the future.
Furthermore, debt counselling frequently includes financial education, which provides individuals with the knowledge and skills necessary to make sound financial decisions and avoid future debt problems.
Are there any drawbacks to debt counselling?
While this process has a positive outcome, there are some potential drawbacks while debt counselling takes place. The length of time it takes to complete debt counselling is one potential challenge. It necessitates commitment and patience as clients strive to become debt-free. Individuals must be realistic in their expectations and understand that debt counselling is not a quick fix.
Another limitation is that clients must make lifestyle changes during the debt repayment period. This could mean cutting back on expenses, sticking to a stricter budget, or avoiding new credit. However, it is critical to consider the long-term benefits of these changes in order to achieve financial freedom.
Certain credit restrictions may be imposed on clients during the debt counselling process. They may be required to close existing credit accounts, refrain from incurring new debt, or obtain permission from a debt counsellor prior to applying for credit. These restrictions are in place to keep clients from worsening their financial situation and to ensure the debt repayment plan’s success.
Debt counselling plays a crucial role in helping individuals regain control of their finances and overcome the burden of debt. By providing a structured plan, negotiation with creditors, and legal protection, debt counselling offers a ray of hope for those struggling with overwhelming debt.
If you find yourself overwhelmed by debt, take the first step towards financial freedom by reaching out to MSD Consulting. Contact us for a consultation and learn more about how debt counselling can pave the way for a brighter financial future. Your journey to a debt-free future starts today.
MSD Consulting is a registered debt counselling firm, committed to providing debt relief to all South Africans struggling with their monthly debt obligations. Our team of qualified debt counsellors and financial experts provide personalised debt counselling services tailored to your situation. For more information on debt resolution, follow us on Facebook and Instagram.