“While the National Credit Act managed to buffer the effect of the last recession on ordinary consumers, it seems that any lessons learnt by consumers during the recession have gone out of the window,” warns Fin24.
This comes on the back of results showing that almost 42% of people who responded to Fin24’s survey spent as much as 80% of their income repaying their debt.
But what recourse do you have if you find yourself over-indebted with no way to turn?
The answer is debt counselling.
Here’s how debt counselling works and what it entails
If you’re heavily indebted, your first port of call should always be to approach your credit provider, explain the situation to and try to negotiate a plan of action if you can’t pay back your debt on time.
If you’re not successful, the next step is to see a debt counsellor appointed (and partially subsidised) by the state.
Any action your credit provider then wishes to take against you has to go through your debt counsellor in writing before action can be taken.
After that, your debt counsellor will consult your credit providers to find out and check the defaults against you are warranted. He’ll then consider your debts and financial situation, advise you on a budget plan and act as a mediator to your credit providers to set up an affordable repayment plan.
If your creditors agree to the proposed plan of action, your debt counsellor applies to the National Consumer Tribunal to approve the plan. If, on the other hand, your creditors don’t agree to the plan, your debt counsellor is required to take the proposed plan to a magistrate court, who’ll then decide what a fair repayment plan is. Please note, should your case go to court, you’ll be liable to pay any legal fees that arise.
Another thing to remember is, while attending debt counselling you’re under the protection of a court order. This ensures you only have to pay a certain amount every month to your creditors. But should you fail to make a repayment, this court protection falls away and judgements can be taken against you.
Bottom line: If you’re over indebted and spend more than you earn (or almost more) on repaying your debt, it could be time to consider debt counselling. But before you apply, make sure debt counselling is right for you, by taking FSP Invest’s quick four question test here.