We all dread that moment when you stand in the checkout line at a shop with a long queue of people behind you and the lady at the till tells you that your credit card has been declined. Since the economic crisis in 2008 this scenario has become all too common and South Africa has not been immune to the worldwide economic troubles. Prior to 2008 lending regulations in South Africa were tightened and this softened the blow for most people but eventually the burden of over-indebtedness caught up with the big spenders and this mainly in the middle to lower classes. As a result debt review and debt counselling processes were put into place to assist consumers.
The National Credit Act
In 2007 the NCA, or National Credit Act, was introduced in South Africa to regulate how credit was extended to consumers as well as to prescribe what steps were to be followed in case a consumer got into too much debt. This act put the brakes on businesses that were extending credit to people either without first checking to see if they could make the payments or extending them credit even when they knew that they didn’t have the means to make the repayments.
The NCA also describes the steps a consumer can take in order to get relief if they get in over their head. This process is called Debt Review
How Does Debt Review Work in South Africa?
The process is fairly simple and there are a number of websites that explain the South African Debt Review process but in short these are the steps that are followed:
- The indebted consumer meets with a debt counselor, enters contractually into a debt review process and collates a list of all the debt they have.
- The debt counselor will assist the consumer to compile a workable budget that includes a portion for debt repayments.
- The debt counselor will then contact the consumer’s creditors and negotiate a repayment amount that the consumer can afford.
- Once an agreement is reached then payment of funds are made either by the consumer directly to his creditors or he may choose to use a payment distribution agency or PDA to make the process simpler.
The Debt Review process has been designed to maximize the possibility that a consumer will be able to become debt free while avoiding the penalties that go along with running up debt without doing anything to clear it.
The South African Debt Counselling industry has become more and more regulated both out of an escalation of indebted households but also because of some people seeing this process as an opportunity to make money from desperate debt burdened people. Before entering debt review it’s always a good idea to make sure that the agency you approach is recognized by the relevant industry bodies.