Debt counselling and other important parts of financial literacy

Understanding debt and financial literacy

By Scelo Hlophe

The year 2018 came as a huge knockdown for a lot of South African consumers. The increase of VAT to 15% and the rapid increase of petrol has left consumers feeling the financial pinch. This has led to South African consumers finding themselves using their credit cards, personal loans and other credit facilities.

The average South African finds themselves paying plus minus 80% of their salary to debts. Leaving them with less to make it month to month. Bread and Milk can roughly cost you close to R50 alone so you can just imagine how much a month’s grocery can cost you with an average net of +/- R2000 left after having paid debts.

This leads to consumers going for extra credit to help them make it through the month, which leads to being over-indebted and affects your credit profile for future credit, employment, enrolling a child for school and applying for leasing through real estate agencies.

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In 2007, the Nation Credit Regulator (NCR) introduced a debt relief known as debt counselling/ debt review. This is where a consumer applies to go under Debt Review by consulting a registered Debt Counsellor (DC) who will go through all your debts, monthly expenses and income to determine how indebted you are. Debt counselling comes with pros and cons. The Cons are that,

You will not be able to access credit as your profile will be flagged as under Debt Counselling with all the South African Credit Bureaus that are registered with the NCR. (Transunion, Compuscan, Experian, Clearscore just to mention a few)
You will be liable to pay the debt counsellor fees over two months ( The first month will go towards paying the DC and the second month will go towards paying for Legal fees), you will be liable to pay an aftercare fee to your DC every month until you have finished paying.
Once you have been declared indebted you can no longer be able to come out of the plan until you have finished paying off all of your debts or if you can prove that you can now be able to pay all of your debts and you are in a better financial state, through an attorney at your local Magistrate court.
Due to the fact that your monthly repayments are reduced, your term of payment can be a bit stretched longer.

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The Debt Review plan is not really as bad as people are afraid it is, which is why it is important to not agree to anything over the phone or sign any documents without checking if the debt counsellor is registered with the NCR on the following link https://www.ncr.org.za/register_of_registrants/registered_dc.php

The Pros that come with being under the plan are:

You will be legally protected by your DC from your credit providers taking any legal action against you. These actions may include blacklisting, judgements, summons, garnishee orders and more. Provided that such has not been put under your name before you go under debt review.
You will no longer need to make an arrangement or respond to your creditors’ letters, phone calls or threats as they will be communicating with your debt counsellor as your middleman.
Your possessions (vehicle on finance, bond, furniture etc) are legally protected from being repossessed. Provided that a court order has not been sent to you to collect your assets before you register with a debt counsellor
The DC’s plan can help you save money. The reason of going under the plan is to reduce your debt commitment to an amount that you can afford. This plan can help you get out of your financial mess while ensuring your ends meet.
You will receive a monthly statement from a payment distribution agency (PDA) for you to see how your money is being split to your creditors.

Please note that the debt counsellor cannot take the payment directly from you. A PDA does the collection, distribution and statements. Before going under the plan, ensure to verify this information as a lot of consumers have found themselves being scammed of their monies.

The stats of young black people finding themselves under strenuous amount debt and going under debt counselling is shocking. Especially because of the lack of financial literacy and the inability to manage their finances the proper way. Young people need to be taught about saving and budgeting, which will help them avoid finding themselves being under financial stress.

Financial Literacy is a process that one needs to learn and keep as a lifestyle in order to be in a better financial standing. When applying for credit ensure you read the documents and inquire if you do not understand. Seek advice and calculate how the debt will affect you.

Written by: Zuko

Financial Planning Money Personal finance