Debt counselling is “extremely impactful”

R10 billion repaid in 2020 and consumers saved hundreds of thousands in interest

As with many other sectors, the COVID-19 pandemic negatively impacted debt counselling, but despite the straitened economy consumers have continued to repay debts and save hundreds of thousands of rands in interest.

This is according, to Benay Sager, chairperson of the National Debt Counsellors’ Association, who conducted a recent review on the status of the South African debt counselling industry.

Between April and June 2020 new debt counselling applications declined. Debt counsellors would normally help between 120 000 to 140 000 new applications a year, but last year the figure was in the region of 100 000. There has been a modest increase since June.

Of the people already in debt counselling at least 10%, or between 20 000 and 25 000, people asked for payment holidays.

Despite all the struggles consumers have faced creditors are being repaid between R700 million to R800 million a month. Last year consumers under debt counselling paid creditors R10 billion.

Sager says the South African debt counselling industry is “extremely impactful” because it is able to negotiate lower interest rates. Most consumers who successfully complete the process save between R50 000 and R80 000 in interest and fees.

Each quarter around 10 000 consumers complete debt counselling and get clearance certificates, a considerable improvement since the early days of the industry. Since 2016 over 150 000 clearance certificates have been issued.

“You realise the significance of this when you consider that, on average, each of these consumers is repaying over R200 000 in debt.”

He says the regulator has been extremely supportive over the past 18 months, running awareness campaigns to inform and educate consumers, which have resulted in an increase in enquiries.

The timing is apposite as historically low interest rates have shielded many consumers. As these begin to rise again, possibly in early 2022, debt counsellors will need to be ready to assist more consumers, particularly those with assets, as increasing repayment rates will negatively impact them.

Sager says that industry is well regulated and gets results, although the outdated renumeration model for payment distribution agencies needs relooked. He also believes that while the courts were closed during lockdown there was an opportunity to digitise, which could have streamlined the process and eliminated the “reams of paper” debt counsellors need to take to court.

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