The hard lockdown might be a thing of the past but its effects are still being felt as many people have resorted to debt counsellors to help fix their dire financial situations.

Benay Sager, the chief operating officer of DebtBusters, told Sowetan last week that debt-counselling enquiries have increased by 40% compared to the same period last year. He said this could have been triggered by the lower interest rates and payment holidays that could have provided some short-term relief during hard lockdown last year. However, some consumers have not been able to honour their original payments.

*Thulani, a father of two who works for a Pretoria IT company, saw his salary being reduced from R12,000 to R10,000 last year after Covid-19. His fast-food business also shut down as he could not afford the R1,600 rent. “I had two loans that I took before Covid and when the pandemic hit, I took two more loans with the hope of reopening my business and I also bought new equipment. But it flopped and I had a R190,000 debt that I could not pay,” he said.

“I owed money and ended up getting only R1,000 from my salary after all the creditors have taken their money. I started rotating which debt I would pay each month and then the calls from debt collectors started,” said Thulani.

Thulani approached DebtRescue for help and the company managed to halve his monthly payment towards his debt, which he will pay off by 2025.

Debt reviewers help financially indebted individuals by negotiating with credit providers to  reduce repayments with less interest and then consolidate all their debts into a single monthly repayment. Debt counselling is legal and is regulated through the National Credit Regulator (NCR).

“When a client comes to us, we first look at their credit record and income and then try to understand their debts and how they spend their money. We then draw up a detailed assessment to estimate how long it will take to pay off all that debt and we advise if the client should apply for debt counselling,” said Sager.

It is after this process that counsellors would then approach their client’s creditor. However, Sager said counsellors do not get involved in matters that have been decided by courts such as child maintenance. “Child maintenance is calculated as a monthly expense that cannot be negotiated like we’d do with normal creditors.”

Using debt review, Johannesburg paramedic *Vicky managed to reduce her monthly debt from R5,000 to R2,548. Vicky, who earned R11,373 after deductions, had been living with her boyfriend in Parktown who was taking care of most of their expenses, including rent, and when they broke up she had to move out.

Suddenly, she had a lot more expenses a month than she used to. She took out a personal loan and two more loans on top of her credit card and retail account. Soon she found herself in a financial dilemma.

“I tried every solution possible, but I could not handle my monthly payments. I started going into arrears with some of my accounts. I even started getting lawyers’ letters which was frightening. That caused me a lot of emotional stress and anxiety.”

Vicky sought the services of a debt counsellor, who analysed her income and expenses and found that she needed R5,382 a month to service her debt. As she needed at least R8,000 a month for rent, transport, groceries and other living expenses, she had a shortfall of R3,373.   

Her creditors agreed to reduce interest rates on her debts and extend payment terms. Her monthly debt repayment was reduced to R2,548.

Before seeking the services of the debt counsellor, Sager advised consumers to first check if their counsellor is registered with the NCR. He also said counsellors do not handle their client’s money but a registered payment distribution agency does.

Once the reviewing period is over, the client will receive a certificate within five weeks.

*Not their real names

Pros and cons of debt counselling

For some people debt counselling may be the only option available to get some sort of financial relief to be able to provide for their families while they settle their debts.

However, like any process in which money is involved, debt review also has its pros and cons.

The pros

When you are in debt counselling, you will no longer receive calls from your creditors demanding payment and they cannot take any action against you;

your debt is consolidated into a single and reduced monthly repayment, giving you peace of mind;

your budget will be tailored according to your basic needs before provision is made for debts;

there is no permanent record of having undergone debt counselling;

and your debt counsellor will come up with ways of cutting your costs and saving you money.

The cons

Debt reviews cost money but the fees are regulated;

you are not allowed to take out new credit while undergoing debt counselling;

and your debts might take longer to settle because you pay smaller amounts.

Learn how to budget

Formulate a monthly budget, stick to it and constantly review it; 

Never fall behind on monthly payments for any bills, including credit cards, store cards, utility bills and any other financial obligations;

Only take now and pay later if you can afford to pay the monthly balance on the outstanding credit that comes with the purchase;

Always save at least three months’ living expenses, should any unforeseen accident, loss of employment or emergency arise;

and Learn to negotiate, understand the concept of interest charges and buy on sale. Source: DebtBusters