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WHAT IS DEBT COUNSELLING?

•On 1 June 2007, the National Credit Act 34 of 2005 came into effect, and debt counselling was introduced for the first time in South Africa.

It gives consumers the opportunity to pay back their creditors and not lose their possessions, vehicles or homes.

• It is a legal process, prescribed by the National Credit Act, which allows you to pay back your debt, according to affordability.

• The National Credit Regulator (NCR) regulates the credit industry in South Africa.

• Debt counsellors are trained and registered by the National Credit Regulator. Consumers apply for debt counselling with a NCR registered debt counsellor, who will negotiate the process between the consumer and their creditors, to restructure your monthly payments, to an amount you will be able to afford.

• All credit agreements can be included, to be restructured by the debt counsellor.

• There is no monitory limit to the amount of debt you can include.

• The debt counsellor will make a new offer to all creditors, where monthly repayments are reduced, extension of contractual terms proposed, and in some cases also to reduce interest rates and fees/costs.

• Once accepted, you will no longer be in arrears with your accounts, and will build up a good new credit record.

• The total process is prescribed, from how the consumer must apply, up to the finalisation of the process, where the debt counsellor will issue the consumer with a clearance certificate, after paying off all debt.

• After negotiating with the creditors, the debt counsellor refers all matters to a Magistrate’s court, for a decision where an agreement was not reached with all creditors, and a consent order will be granted. The consent order ratifies the new agreements between the consumer and the creditors and both the consumer and the creditors must abide by this order.

• When under debt counselling, the consumer will pay one, consolidated amount every month, to a NCR registered Payment Distribution Agency (PDA), to distribute the money to the different creditors, until all accounts are paid off.

• The debt counsellor will also investigate cases where a creditor might have granted reckless credit. The onus is placed on the creditor to do a decent assessment of the client’s financial situation, as prescribed by the act, to make sure that the client can afford the credit, before granting another credit agreement. If not, the credit agreement can be annulled and written off by a court.

• A creditor must at all times provide a consumer with a pre-agreement, valid for 5 days, before the credit agreement comes into effect. Maximum interest, fees and costs are also prescribed and a creditor is not allowed to charge more, which will result in reckless credit.

• A debt counsellor will also investigate if any accounts have prescribed, where no payments were made for a period of at least three years.

• After issuing a clearance certificate, the credit bureaus must remove all negative information from the consumer’s credit record, within 5 working days, and the client will be able to apply for credit again, but this time according to what he/she can afford.


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