Consumers urged to consider counseling as way of defeating debt

“Loss of employment, salary cuts, medical bills, rising fuel prices, food and cost of living in general and overspending are some of the reasons consumers end up being over-indebted,” said the regulator.

The National Credit Regulator (NCR) on Tuesday urged consumers to consider debt counseling as a way of defeating debt.

"Loss of employment, salary cuts, medical bills, rising fuel prices, food and cost of living in general and overspending are some of the reasons consumers end up being over-indebted," said the regulator.

The consumer is considered to be over-indebted if their available income is not enough to pay for basic living expenses and debts.

The National Credit Act (NCA) introduced debt counseling as a debt relief measure aimed at assisting and rehabilitating consumers who are over-indebted. This assistance is provided by debt counselors registered with the NCR through negotiation with credit providers and reduction of monthly contractual payments, in line with the consumer's disposable income.

The rehabilitation is realized through regular reduced payments until the debt is paid up and a clearance certificate is issued.

The NCR, which was established under the National Credit Act, is responsible for the regulation of the South African credit industry.

"When consumers are under debt counseling, they get protection against legal action by credit providers and for as long as they maintain payments of their monthly reduced payments. Consumers who are married in community of property have to make a joint debt counseling application," said the manager for debt counseling at the NCR, Kedilatile Legodi.

Legodi stressed that there is no prescribed and fixed debt counseling repayment term and that the period that a consumer remains under debt counseling depends on the consumer's income, basic living expenses and the type of debt the consumer has.

Once all debts have been paid up under debt counseling, the consumer will then be issued with a clearance certificate to show that they are debt-free.

At times, debt counseling is offered or advertised as a payment holiday or a savings plan where consumers are promised to save up to a certain percentage of their monthly installments.

The regulator said such advertisements were misleading and prohibited and that debt counseling is a relief measure to cope with financial distress. Debt counseling is also a means for consumers to remain responsible for and to continue paying their debt until they are paid up.

"Debt counseling does not in any way give consumers a break from paying their debts," said Legodi.

The regulator encouraged consumers to be proactive and seek help immediately when they notice signs of over-indebtedness and financial distress.

In addition, before consumers sign the debt counseling application form, they have to make sure that they understand what the debt counseling process is, what their rights and obligations are as well as the consequences of being under debt counseling.

Debt counselors have an obligation to explain the process in detail and to disclose applicable debt counseling fees in writing.

Consumers are advised to visit the NCR website (www.ncr.org.za ) to get a list of registered debt counselors within their areas.

"Debt should not be a silent killer or the end of the road for consumers. There is relief in debt counseling that leads to rehabilitation," said Legodi.

The NCR is an agency of the Department of Trade and Industry (dti).

(With Inputs from South African Government Press Release)