Problems with Debt Counselling
Thanks to the National Credit Act (NCA), debt counseling was introduced to South African residents in 2007, allowing for hundreds of thousands of consumers to apply for the now preferred debt solution.
Within six years of the Act’s commencement, consumers have successfully paid R10 billion.
Debt counseling was designed to give over-indebted consumers an alternative to traditional debt counseling solutions. Before, administration and sequestration served as the two primary debt solution methods for consumers. Even though these methods offered a solution to repay debt to credit providers, it didn’t offer any means of rehabilitation which is one of the primary reasons why consumers today, prefer debt counseling.
Before any consumer enters debt counseling, however, it is necessary to look at the advantages but most importantly also the disadvantages to address problems related to debt counseling.
Disadvantages of Debt Counselling that May Translate into Problems for Consumers
- There is a chance that you may not qualify for debt counseling
We know what you’re thinking. Why on earth would the National Credit Act provide a debt solution to South African consumers unless the debt solution could help everybody in the entire country?
Well, for debt counseling to be effective and help you get out of debt hassle-free, you must be employed and willing to comply with the NCA’s terms. If you’re unable to meet all your expenses each month, a debt counselor will work out a budget for you, which is often not preferred by consumers as they are bound to repay the amount owed in a timely manner.
- Debt counseling will cost you money
In case you thought that it was free, there’s no such thing. Over-indebted consumers that qualify for debt counselling must pay the following:
- Application fee – R50
- Rejection fee – R300 (should you not qualify)
- Debt counselor’s fee – Up to R6,000
- After-care fee – R400 (Maximum amount for 24 months of 5% of your monthly installments).
- You may be required to pay legal fees
This is required for a consent order that stipulated a consent order between you and all your creditors, basically a debt rearrangement plan, which cost R750.
- There is a chance that not all your debts will be covered
If any of your credit providers have commenced on taking legal action against you, that debt could be excluded from being paid during your debt review.