7 STEPS TO SAVE YOU FROM DROWNING IN DEBT

Now that many companies have stopped offering Covid-19 payment holidays, many individuals are finding it hard to manage their finances and are living with the fear of having their assets repossessed. Could debt counselling be the answer?

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Job losses and salary cuts in the wake of the Covid-19 pandemic have left many people struggling with debt, on top of any health concerns they might have.

‘Debt counselling is an effective way to regain control of your financial affairs,’ says Benay Sager, chairperson of the National Debt Counsellors’ Association (NDCA), which represents some of the biggest debt counsellors in South Africa. However, he says many people don’t understand what debt counselling is, and they are often misinformed and afraid of stigma, so they don’t ask for help, or they leave it till it is too late.

‘Many people who could have really benefited instead try to manage their financial situation themselves, potentially getting deeper into difficulty and ultimately risking their homes and cars being repossessed,’ says Sager. ‘All because they didn’t understand the process, heard some rumour or were too embarrassed to speak to a debt counsellor. South Africa’s debt-counselling sector is world class – it’s well structured, highly regulated and it works.’



7 STEPS TO DEBT COUNSELLING

1. Don’t delay: in today’s harsh economic climate, it’s more critical than ever that if you are struggling to make your monthly payments and have fallen behind, you should seek help straight away, says Sager. ‘There’s no reason to feel ashamed. Avoiding phone calls or letters of demand is not a solution – the earlier you act, the better chance you have of getting back on a sound financial footing and not putting everything you’ve worked for at risk.’

2. Contact a registered, reputable debt counsellor (such as one of the NDCA members, check out National Debt Advisors. All debt counsellors must be registered with the National Credit Regulator – to check if one you are considering is registered, click here: National Credit Regulator. ‘Ask if the debt counsellor uses the Debt Counselling Rule Set system,’ advises Sager. ‘It’s the industry gold standard and benefits consumers and creditors alike by significantly lowering interest rates and the time it takes to complete the process.’ Also check if they belong to a professional body which ensures its members keep to industry standards, such as the NDCA.

Call them or visit their website where you can submit a free call-back form.

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3. Financial assessment: The debt counsellor will start off by doing a free financial assessment to find out how much you owe, and advise you whether debt counselling could be a solution. ‘It’s important to be honest and provide as much information as possible, so the debt counsellor can make an accurate assessment of your financial situation,’ says Sager. Anyone unable to pay their debt should qualify, you just need to have some source of income. All credit granted as part of the National Credit Act, such as bonds, vehicle finance, personal loans and various other types of debt can be included, but not municipal and NSFAS (student financial aid) debt, or company or other non-personal debt. If you are married in community of property, you must apply with your spouse.

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4. Apply: If you are satisfied with the debt counselling option, you can then formally apply for debt counselling. As soon as you do this, the counsellor takes on the heavy work of informing all your creditors, and negotiates reduced monthly payments, which will be within agreed industry boundaries and what you can afford. The ‘rearranged debt’ is then approved by a court or the National Consumer Tribunal, which confirms that the creditors have agreed to the rates and won’t change these for the period of your debt counselling.

5. Payments: You then make one affordable payment every month, which is distributed to your creditors through an independent payment distribution agency that’s also regulated by the National Credit Regulator. ‘All reputable debt counsellors should have a client-service team available throughout the process to give you help and support and communicate with your creditors, relieving you of the stress,’ says Sager. (The debt-counselling fees will form part of your reduced monthly instalments, and the National Credit Regulator has fee guidelines, he adds.)

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6. How long? Debt counselling usually lasts three to five years, depending on the amount, the interest rates your debt counsellor manages to negotiate, and what you can afford to pay. When the process is completed, the debt counsellor issues a clearance certificate confirming all the amounts listed in the agreement are paid up (except for a home loan, which need not be fully paid up, just up to date).

7. All clear: Once you have the clearance certificate, you can again apply for credit. (When you apply for debt counselling, you will be registered with credit bureaus as being under debt counselling, and not eligible for new credit). ‘It’s advisable to draw up a realistic budget and discuss it with your debt counsellor or financial adviser before applying,’ Sager says. ‘You don’t want to head back into debt.’