A term that we sometimes struggle to come to terms with or even avoid… debt. In 2020 for the first time in 2 decades, household debt in South Africa dropped significantly. Although this sounds good and well, this was very dependent on COVID-19 restrictions. This news also highlights the big problem of debt that we do have as a country. As much as we would like to avoid the problem. It is an issue that is not going away any time soon. Understanding debt, how it can be alleviated and when to know to ask for help, is extremely important. One of our financial service providers explains the difference between debt relief, debt meditation and debt counselling fully.
Debt relief is a term used to describe measures or the way/s in which a consumers debt/s repayment can be reduced for him/her to effectively manage his/her finances and we shall be discussing this below.
Debt Relief Measures
- Debt Mediation
- Debt Counselling
- Administration Order
- Liquidation / Sequestration
Debt Mediation refers to a debt relief process whereby the consumer and the creditor negotiate a reduction of the consumer’s monthly instalment for a particular account. Most creditors decrease the instalment amount, leaving the interest as is and extending the payment term. There are some creditors that also reduce the interest rate but not by a lot.
The consumer can also appoint a Debt Counsellor to negotiate on his behalf as Debt Counsellors are trained and have the required skill set to negotiate for the best possible rate on the consumer’s behalf.
Once the consumers financial situation is assessed, the mediator will contact the creditor/creditors and put forward a repayment proposal in writing and the reason for the proposal. The creditor will then either accept the proposal or they will counter propose and once the repayment terms are settled upon, an agreement will be signed confirming the new arrangement.
Debt Mediation is not widely accepted as it offers the consumer no legal protection from judgements and attachment of property. The agreement entered is informal and therefore it is not binding on the creditors, which mean that at any stage they can revert to the original repayment plan if it is in their best interest.
Debt Mediation can be costly as most service providers do not have the required skillset and techniques that are required and just looking to make a quick buck at the consumer’s expense. A consumer should always seek assistance from a Registered Debt Counsellor. Only after assessing your financial situation can a determination be made on whether to proceed with Debt Mediation or Debt Counselling.
In my professional opinion, Debt Mediation should only be done by Registered Debt Counsellors only if they do not qualify for Debt Review.
Before we go into Debt Counselling, we need to define a Debt Counsellor.
First, a Debt Counsellor is a trained and qualified professional who is registered with the National Credit Regulator to render Debt Counselling assistance to over-indebted consumers. A Debt Counsellor can also mediate on behalf of the consumer if he/she does not qualify for Debt Review. A Debt Counsellors main objective is to assist over-indebted consumers or consumers having trouble in managing their debts.
Now that we have defined “Debt Counsellor”, let us look at Debt Counselling.
Simply put, Debt Counselling or Debt Review is a process whereby a Debt Counsellor assesses a consumer’s outstanding debt and his finances to implement a restructured debt repayment plan. This is done by negotiating with the consumer’s creditors. The consumer makes one monthly debt repayment to an Appointed Payment Distribution agent, who will then distribute to his creditors on the distributions list. They will receive a statement every month showing how his debts are being serviced. The consumer will remain on Debt Review until his /her short-term debts are paid off and will not exceed a period of 5 years.
NB: Debt Counselling / Debt Review process only begins once the Debt Counsellor has made an over-indebtedness determination.
Debt Counselling / Debt Review is a proven debt relief measure and was introduced by the South African Government through the National Credit Act 34 of 2005 to assist and protect over-indebted consumers. The main purpose of this act is “to promote and advance the social and economic welfare of South Africans, promote a fair and transparent, competitive, responsible, efficient, effective and accessible credit market in the industry and protect the consumer” Another purpose of the act is to protect consumers from Reckless Lending and Debt Counsellors are trained and qualified to investigate such matters.
A consumer will enjoy legal protection once he is under debt review and his assets are protected from attachment.
In my professional opinion, Debt Counselling is the simplest and most effective Debt Relief measure that can give the consumer total peace of mind and legal protection. this is a Debt Relief measure that really works, and a lot of consumers have benefited from Debt Review.
Knowing when to seek help!
Very often, we tend to dismiss the thought of seeking professional help. In the hope that a particular situation would change. When it comes to Debt, the situation will only get worse if it is not taken care of. If you are experiencing any of the below, please seek assistance from a Registered Debt Counsellor.
- Your income has been reduced which is affecting your ability to manage your debts and maintain repayments.
- You are reaching a point where you are thinking of skipping an instalment.
- Experiencing stress due to creditor harassment and unpaid accounts.
- Expenses are exceeding your income.
- Debts keep growing to a point where you are unable to maintain instalments.
- Your indebtedness is affecting work performance.
- Indebtedness is affecting your marriage.
You have to remember debt is something that cannot go away without being serviced. To extinguish a debt, one needs to maintain monthly repayments on that debt. When a debt is ignored the amount owed on that debt will grow. To a point where it would be handed over for legal action to commence.
You must not be afraid or embarrassed, reach out and seek help!
Regarding all the above been considered, there is only one recommended debt relief measure for an over-indebted consumer and that is Debt Counselling. It is simple, effective and offers you legal protection. Further to that, this process will teach you to money management skills you never thought you had. Other than being a proven debt relief measure. It also serves to educate you on managing your finances even after the Debt Review Programme.