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Requests for debt counseling increased significantly in 2021, according to the National Debt Counselors’ Association (NDCA), with some members recording increases of more than 30%.

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.

The loss of income, wage cuts, bonuses and incentives that were reduced or not paid at all, combined with the end of payment holidays and already high levels of household debt, have left people who were previously on the verge of getting out of it could no longer.

He said there was a silver lining, as the increase in inquiries indicates that financially distressed consumers are also more aware of debt counseling as a possible solution and are becoming increasingly proactive in dealing with debt problems.

Debt counseling has huge benefits. These include:

  • Monthly repayments are reduced by renegotiating the period over which the debt is to be repaid and securing lower interest rates.
  • Consumers only make one payment for all of their receivables.
  • Consumer goods, such as homes and vehicles, are not at risk.
  • Rather than having to deal with many creditors, they only deal with one person, the debt counselor, who renegotiates all the debt.
  • Debt is restructured to ensure that monthly payments are affordable and that there is money left over to cover essential expenses.
  • Under the national credit law, the process is protected by law.

Sager warned that while there are many benefits to debt counseling and in South Africa it is effective, well managed and highly regulated, consumers should understand that it is not an instant fix.

Debt 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.

It 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.

Another thing that is important to understand is 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 again become a creditor.

Sager warned, however, 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 is a violation of the National Credit Act and consumers who are tempted could lose the creditor protection offered by debt counseling.

There are many benefits to debt counseling, but consumers should understand that it is a commitment, not an instant fix. 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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