The Rise of Debt Counselling in South Africa: A Lifeline for Over-Indebted Consumers
Debt counselling has emerged as a beacon of hope for South Africans grappling with financial distress. Introduced in 2007 under the National Credit Act, this debt relief measure has gained traction as more consumers recognise its benefits. With the staggering scale of debt in the country—totalling R2.077 trillion as of recent statistics—the need for effective solutions has never been more pressing.
Currently, over 717,495 South Africans are under debt review. This process involves registered debt counsellors negotiating with creditors to restructure payment plans based on disposable income. Consumers under debt review are protected from legal actions by creditors, provided legal proceedings haven’t already commenced.
Impact of Debt Review on Credit Profiles
When a consumer enters debt review, their credit profile is flagged with a “debt review” status at credit bureaus. This flag restricts access to new credit during the process, ensuring that the consumer focuses solely on repaying existing debts. While this may seem like a limitation, it is a protective measure that prevents further financial strain.
The debt review status is temporary and is removed once the consumer has successfully completed the program and received a clearance certificate. At this point, the consumer’s credit profile is updated, and they can begin rebuilding their credit score. However, the process of restoring a healthy credit score may take several months or even years, depending on the consumer’s financial habits post-debt review.
How Long Before Consumers Can Participate in the Economy Again?
The duration of debt review varies based on individual circumstances, such as the total debt amount, negotiated interest rates, and the consumer’s repayment capacity. On average, the process takes 3 to 5 years to complete. Consumers who make additional payments or settle smaller debts early can expedite the process.
Once the debt review is completed and the clearance certificate is issued, consumers can re-enter the credit market. However, rebuilding trust with creditors and improving credit scores requires consistent financial discipline, such as timely bill payments and maintaining a low debt-to-income ratio.
Debt Review vs. Voluntary Sequestration
Both debt review and voluntary sequestration are debt relief measures, but they differ significantly in their approach and implications:
| Aspect | Debt Review | Voluntary Sequestration |
| Process | Negotiation with creditors to restructure debt payments. | Legal process where the consumer voluntarily surrenders their estate to the court. |
| Impact on Assets | Consumers retain their assets, including homes and vehicles. | Assets are sold to pay creditors; immovable property (paid up or financed) and vehicle(s) are repossessed while still financed. |
| Debt Write-Off | No debt is written off; payments are restructured to be more manageable. | Up to 80% of debt will be written off, but creditors must receive at least 20 cents in terms of the debt owed. |
| Duration | Typically, 3 to 5 years, depending on the repayment plan. | Consumers remain sequestrated until rehabilitated, which can take 6 months to 10 years. |
| Credit Profile | Flagged with “debt review” status, removed after completion. | Declared insolvent; credit profile reflects sequestration until rehabilitation. |
| Legal Protection | Protected from legal action by creditors during the process. | Legal protection from creditors once sequestration is granted. |
| Cost | Upfront costs: Monthly payments are distributed to creditors. | Upfront costs, which include legal fees and disbursements. |
Why Debt Counselling Matters
Debt counselling offers several advantages:
- Protection from creditors: Consumers are shielded from legal actions and asset repossession.
- Structured repayment plans: Payments are tailored to the consumer’s financial situation, ensuring affordability.
- Path to financial freedom: Upon successful completion, consumers receive a clearance certificate, restoring their credit status.
Future Prospects for Consumers
The future of debt counselling in South Africa looks promising. As awareness grows, more consumers are likely to seek this lifeline. Innovations in online debt management tools and increased enquiries about debt counselling indicate a proactive approach to financial health. Additionally, the introduction of systems like the two-pot retirement fund withdrawal scheme provides consumers with more options to manage their finances.
While challenges remain—such as high interest rates and the rising cost of living—the increasing adoption of debt counselling reflects a shift towards financial responsibility and empowerment. With continued education and support, South Africans can navigate their way out of debt and towards a more secure financial future.
Take Action Today
If you or someone you know is feeling overwhelmed by debt, don’t wait for the situation to worsen. Explore your options—whether it’s through debt review or voluntary sequestration. Take the first step towards financial freedom by consulting with a registered debt counsellor or seeking professional advice. The path to a brighter financial future starts with a single decision to regain control. Take charge today, because your financial well-being is worth it!
Sources for the compilation of this article: