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Your guide to debt counselling

Debt counselling is a regulated solution that enables you to regain control of your personal finances. We consider this option, and some factors attached to its use.

14 September 2022 · Athenkosi Sawutana

Your guide to debt counselling

Debt, used wisely, can be a means to secure your financial future and achieve your dreams. However, under current economic conditions, many consumers find themselves incurring excessive debt that they cannot repay.

You may have heard of debt counselling, a regulated solution that enables you to regain control of your personal finances. We consider this option, and some factors attached to its use.

Want to eliminate debt stress? Apply here.

How do you know if you have too much debt?

One way to determine how much debt you have is by calculating your debt-to-income (DTI) ratio. To calculate, take your monthly debt repayments, divide by your gross income, and multiply the answer by 100. A high DTI shows that you have too much debt for your income. If your DTI is low, you are still in control of your debt and you may even qualify for further credit.

DTI = monthly debt repayments / gross income x 100

Example 1:

Gross income =R20,000

Personal loan =R7,000

Credit card =R2,000

Vehicle loan =R3,500

DTI = 62.5%

Example 2:

Gross income =R20,000

Personal loan =R1,500

Credit card = R1,000

Vehicle loan = R3,500

DTI = 30%

If you fall under example one, you are unlikely to get more credit, and you have too little money to save. However, if you fall under example two, you are likely to receive more credit because you are able to manage your finances.

The only way to reduce your debt-to-income ratio is by decreasing your debt and/or increasing your income.

Other signs that you are overindebted include:

  • Borrowing from one creditor to pay another
  • Having no emergency fund or savings plan
  • Your disposable income does not last until your next payday
  • Making late payments, or skipping them altogether

If this is your situation, you may need assistance before things spiral out of control.

What is debt counselling?

In 2007, the National Credit Regulator (NCR) introduced debt counselling to assist consumers who are struggling to pay their debt.

Debt counselling is a process that helps you restructure your debt obligations. Under debt counselling, your debts will be consolidated, and you will pay one instalment to your debt counsellor, via a payment distribution agency (PDA), which will then distribute the funds to your creditors on your behalf.

However, this should not be confused with debt consolidation, where you consolidate your debt with a loan. You can’t apply for debt counselling if you’re not overindebted, and you must have a steady income to qualify.

How does debt counselling work?

After engaging a debt counselling company, a debt counsellor will assess whether you are indeed overindebted. To this end, the counsellor will need your proof of income, bank statements, a list of your creditors, and your monthly expenses.

After assessing your indebtedness, the counsellor will help you draw up a repayment plan. He or she will allocate reduced instalments to your creditors, while ensuring that you can still afford the necessities, and have extra to help you get through the month. Interest rates will also be restructured, as well as the term of your unsecured debt.

When you’re satisfied with the plan, the counsellor will contact your creditors and negotiate with them.

The debt counselling process legally protects you from being hounded by creditors. For the process to be recognised, the debt counsellor’s legal team will apply for a court order, providing you with legal protection against credit providers.

The magistrate can grant the court order with or without your presence, as long as the debt counsellor’s legal representatives are there.

Once the court order has been granted, you will not be allowed to cancel your debt counselling programme until your short-term debt has been settled. If you have a home loan, make sure that all of your instalments are up to date.

What happens to your assets when you are under debt counselling?

Under debt counselling, your long- and short-term assets are secure. It’s only when you withdraw or fail to cooperate that you can lose your assets, as legal protection is no longer in place.

What does the programme cost?

When you apply for debt counselling, your credit providers are notified and they provide your debt counsellor with 60 days’ grace to reorganise your debt. The following fees are thus charged over two months, which helps to make them more affordable.

It’s also important to note that most of these fees are only paid once and are unique to your debt situation. The following is a guideline of what you can expect, based on recommendations made by the National Credit Regulator. All amounts are excluding VAT.

Your first monthly fee includes:

  • An upfront application fee of R50.
  • An administration fee of R300.
  • A determination fee, which is aligned to the outcome of the assessment of your financial information.
  • A restructuring fee, payable in the first month after drafting and submitting the proposal. The restructuring fee is equal to the distributive amount of not more than R8,000 for a single applicant, and R9,000 for consumers married in community of property.

Your second-month payment includes:

  • An attorney fee, to the equivalent of your monthly debt rehabilitation amount for your legal application to the magistrate's count, payable after the creditors have accepted the repayment plan.


  • An aftercare fee of 5% of the distributed amount, or an amount not more than R450 per month.

Can you apply for debt counselling if you are unemployed?

Debt counsellors can assist you only if you have a monthly income. They are there to help you pay reduced instalments, not to help you avoid paying. If you are unemployed, you need to speak to your creditors, so that you can make arrangements to repay your outstanding balance.

Should you be retrenched or unable to work because of an accident, speak to your credit provider about credit life insurance. Many consumers are not aware that this insurance may be included in their loan contract.

Can you undergo joint debt counselling?

If you and your partner are married in community of property, you will automatically both be under debt counselling, provided both parties consent. This is because legally your assets are one.

Both of you will be responsible for the repayments until you have completed the programme. However, if the marriage is out of community of property, you can choose whether you want to apply for joint counselling or not.

Should you divorce while under joint counselling, you will have to cancel your contract and apply for a new one.

Your new application will be separate from that of your ex-spouse or partner and it will be based on your personal debt profile.

How long does debt counselling last?

Debt counselling can last for up to five years, depending on the extent of your indebtedness, and the amount you pay. However, you can complete the programme earlier if your financial situation changes or you increase the instalments.

Skipping payments can prolong the process. It’s therefore important that once you commit to the programme, you stick to it.

Under the process, you can choose which accounts to settle first. But that also means increasing the repayment amount for those accounts.

Can you get credit while you are receiving debt counselling?

By law, creditors are not allowed to lend to a consumer currently undergoing debt counselling. Granting credit to a consumer who is under debt counselling is deemed reckless lending by the NCR. If a creditor is found guilty of reckless lending, they could lose their trading licence.

However, this does not mean you can’t apply for credit in the future. After receiving your clearance certificate, you must ensure that your debt counsellor submits it to all the credit bureaus. The bureaus will unflag your name and change your debt counselling status.

When the above has been done you can apply for credit. Take time to build your credit score and ensure that your name has been unflagged by the credit bureaus. Adverse information can have a huge impact on your credit score.

What happens if you default on your debt counselling payments?

The debt counsellor has every right to suspend his or her services if you’re not cooperating. The counsellor will give you ten days to rectify the situation. If you fail to do so, the contract will be cancelled.

If the debt counsellor terminates the contract, it opens communication between you and your creditors once again. Your creditors will start calling and making demands. Failure to meet those demands may well lead to legal action. Your creditors will apply to the court to have your property attached and sold so that they can recover their money, or your salary may be garnished.

Furthermore, your credit record will be damaged. If you fail to meet the creditors’ demands, they may apply for a judgment against you, leaving you unable to take credit for up to five years.

What if you choose to make direct payments to your creditors?

The national credit act (NCA) states that if you decide to make direct payments instead of utilising a PDA, via the debt counselling process, the debt counsellors cannot construe that as non-cooperation.

However, you are still expected to pay your instalments on time, as stipulated in your debt counselling agreement. Furthermore, you are expected to send proof of payment to your counsellor, to enable them to keep a record.

Does debt counselling mean you are blacklisted?

Being under debt counselling does not mean you are blacklisted. The term blacklisting has lost its meaning over the years. It formerly applied to people whose accounts had been written off, handed over, or who had a judgement against them.

Being under debt counselling means that you’re taking responsibility for your debt, and creditors perceive this as positive.

Can you change to a different debt counselling provider?

If you no longer wish to continue with the services of your current debt counsellor, the NCA has a provision for you to switch service providers. When you apply for debt counselling, you sign over your power of attorney, giving the counsellor permission to be your representative. When you end the relationship, you must revoke the power of attorney and assign it to another service provider.  

If you want to take this step, you need to inform your counsellor so that they can cancel their contract with you. The counsellor also needs to inform your creditors about the end of the relationship.

It’s important to note that you will be charged the same fees that you paid to your first debt counsellor on initiation. So, before you switch, think about the costs involved.

Even though it’s rare for a person to receive debt counselling more than once, you can apply for debt counselling as many times as you wish.

Debt counselling can offer many benefits if it’s conducted correctly. Before you apply, speak to an independent financial adviser. Commit to the repayment plan and, before you know it, you will be leading a debt-free life.

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