Requests for debt advice increased significantly in 2021.
This is according to the National Debt Counselors’ Association (NDCA).
Association president Benay Sager said the increase in numbers was not unexpected given the effect of successive lockdowns on an economy that was already struggling before the pandemic.
âThe loss of income, wage cuts, reduced or no bonuses and incentives paid at all, combined with the end of payment holidays and already high levels of household debt, mean that people who were previously on the point of getting out of it could no longer. “
He says there is a positive side because the increase in inquiries indicates that financially stressed consumers are also more aware of debt counseling as a possible solution and are becoming more and more proactive in dealing with issues. debt.
Debt counseling has huge benefits.
â¢ Monthly repayments are reduced by renegotiating the period over which the debt must be repaid and securing lower interest rates.
â¢ Consumers only make one payment for all their receivables.
â¢ Consumer goods, such as homes and vehicles, are not at risk.
â¢ Rather than having to deal with many creditors, they only deal with one person, the debt counselor, who renegotiates all of the debt.
â¢ Debt is restructured to ensure that monthly payments are affordable and that there is money left over to cover essential expenses.
â¢ Under the National Credit Act, the process is protected by law. Sager cautions that while there are many benefits to debt counseling, and in South Africa it is effective, well-managed and highly regulated, consumers need to understand that it is not an instant solution.
âDebt counseling is a long-term commitment, not an easy fix. Just as it takes time to accumulate debt, it also takes time to reduce it. The important thing is to continue making regular payments and, if your situation improves, to pay more to speed up the process.
âIt is also imperative that a person undergoing debt counseling inform the debt counselor if their financial situation deteriorates as a result of a pay cut or anything else that negatively affects their income.
âIt’s also important to understand that while they are taking debt counseling, consumers cannot get more credit. The process is not completed until all unsecured debts are paid off and, if there is a bond, it is up to date.
“Then a clearance certificate is issued and the consumer can once again become active in credit matters.”
Sager, however, cautions that there are unscrupulous companies out there trying to take advantage of impatient consumers who take debt counseling and offer “debt review removal services.”
This violates national credit law and consumers who are tempted could lose the creditor protection afforded by debt counseling.
âThere are many benefits to debt counseling, but consumers need to understand that it is a commitment, not an instant solution. For people who stick to the plan and make their monthly payments, it works well, and the vast majority never fall back into unsustainable debt again. “
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