'Households are under pressure due to rising indebtedness, falling incomes and job insecurity.'
(Business Report, 28 June 2009).

7.6-million credit active consumers had negative payment records in December 2008, according to the latest Credit Bureau Monitor Reports. Hundreds of thousands of newly purchased cars are being re-possessed by the banks every month ? proof of consumers still living beyond their means. With rising electricity prices and ever-increasing day to day living expenses, consumers should be tightening their belts. However, for many consumers, overspending and a lavish lifestyle are hard to sacrifice. Unnecessary accounts, gym memberships, expensive hobbies and regular shopping sprees are still the norm for many South Africans despite being deep in debt.

"Consumers should focus on liquidating their debt as fast as possible in a difficult economic climate," advises Peter Barton-Hill, CEO of PBH Consulting, an NCR accredited debt counselling firm. Debt counselling was introduced by the National Credit Act and can be a solution to over-indebted consumers. Consumers may qualify for debt counselling if their monthly living expenses and debt repayments exceed their net income (take-home pay).

Only pay what you can afford

How does debt counselling work?

During an obligation-free consultation, the debt expert outlines the process of debt counselling and offers practical advice. Following an in-depth assessment the counsellor will inform you whether or not you qualify to be placed under debt review. A proposed repayment plan is set out for your creditors where your current monthly debt obligations are restructured for you to pay only what you can afford. Some counsellors also compile personal budgets as part of their services, taking into account your essential living expenses such as groceries, utility bills and education. This helps you reduce non-essential living expenses so you live within your means.

No more harassment from your creditors

Mr Barton-Hill explains: "Once placed under debt review creditors may not take legal action against consumers for a period of at least 60 days while an assessment is concluded and new repayment proposals are drafted. Should any creditor reject a proposal they are required to submit a counter proposal. The debt counsellor will assess the counter proposal and if the consumer is still unable to afford the proposed repayment plan the matter is referred to a court or credit tribunal in application for a consent order. A consent order outlines the new payment plan and creditors are obliged to accept the terms of the consent order."

No need for shame

Consumers may be ashamed at having landed in a difficult financial situation. "A large percentage of South Africans are over-indebted and there is no need to be ashamed," comments Mr Barton-Hill. "Economic pressures and the cost of credit weigh heavily on many consumers, as well as other factors such as job losses and social spending patterns. Thanks to the National Credit Act there is now a way to help those experiencing financial difficulty to avoid the debt trap."

An experienced debt counsellor ensures that the consumer is in safe hands, taking time to explain the process and advantages debt counselling can provide. An average initial consultation takes two to three hours. Consumers from all walks of life are affected by debt. "The highest percentage of over-indebtedness rests with consumers with a higher than R700 000 household income per annum."

Getting into debt does not have to mean that you cannot manage your personal money matters. "One of my clients is a prominent businessman with several businesses and is very conservative with expenditure. However, his clients are not paying him on time, leaving him with a negative cash flow. Debt counselling will ensure that my client does not lose his house and vehicle and is able to pay off his debt in affordable installments, securing peace of mind."

What will debt counselling cost you?

You pay only R50 to apply. For single applications a once-off fee is charged equal to your first restructured monthly installment or R3000, whichever the lesser. Joint applications (which include your spouse) may cost R4000. These fees may be paid upfront or deducted from your initial installment to creditors. Your debt counsellor should negotiate affordable legal fees with his attorney should court representations be necessary. An after-care handling fee of three to five percent of your restructured installment (up to R150 per month) applies until such time as your debts are liquidated, where after the debt counsellor will issue you with a clearance certificate. This certificate expunges past negative debt information.

Useful contacts

Article courtesy of PBH Consulting

  • Click here to learn how your credit score is determined and what you can do to improve yours