With over 50% of credit-active South Africans being behind on one or more debt repayments, debt solutions are a desperate requirement for many. These come in a few forms – debt management, debt counselling/review, debt mediation or debt consolidation, to name a few. With limited information or education on this subject, many consumers do not know where to turn.

What is the point of a debt solution?

Consumers usually look for debt solutions when they are struggling to manage their debts. Often, consumers have multiple debts and find it difficult to juggle all of the payments. This usually results in missed debt repayments or borrowing more.

The goal of a debt solution is to create a plan to manage debt better. The end goal is to become debt-free. Most consumers are looking for lower debt repayments that are in line with their budgets. Having one payment instead of many can also assist in managing personal debt better.

What is Debt Counselling?

Debt counselling is a formal debt management process introduced by the National Credit Act in 2007. Debt counsellors administer the debt counselling process. They determine if consumers are over-indebted or not. A debt counsellor will negotiate with all of the credit providers to reduce debt repayments and interest rates.

Benefits of debt counselling:

• One lower debt repayment
• Simple and structured payment plan
• Very low interest rates (often between 0-5% for unsecured debt)
• Legal protection on accounts and assets
• Formally recognised process
• Clearance certificate issued once process complete

Things to look out for:

• Unregistered debt counsellors . Debt counsellors need to be registered with the National Credit Regulator (NCR)
• Consumers cannot use or take out new debt while under the process. Only once debt has been settled will the debt counselling flag be removed
• Always check online ratings to get a sense of service (Google, Facebook, HelloPeter)

What is Debt Mediation?

Formally, debt mediation is known as Voluntary Debt Mediation Solution (VDMS). The aim of the process was to design a debt solution that works similarly to debt counselling, without some of the implications. The difference was that the new agreements wouldn’t go to court to become legally binding, like they do under debt counselling.

The result of this has caused a few hiccups. VDMS has been problematic in the followings ways:

• Individual negotiations with credit providers – this is time consuming and lacks uniformity
• There is not one simple payment plan, as with debt counselling
• No legal protection – this could be the processes biggest flaw. With the matter not going to court or tribunal, the new agreements are not legally binding.
• Could put assets at risk
• Lastly, the NCR does not approve of VDMS, as it violates the National Credit Act. This means that the process is not formally recognized and therefore has no legal framework

As you can see, going for a formally recognised debt solution will provide you with the necessary legal protection. When it comes to legal negotiations, having a binding contract is vitally important.

Debt counselling was introduced to assist over-indebted consumers. Prior to 2007 there were no structured relief measures for battling consumers. Many of which got “stuck” in a debt cycle without a clear way out. Debt counselling solves that by allowing consumers to pay what they can afford while reducing their total debt.

For more information on debt solutions in general, contact Vantage Debt Management today. We offer a free debt assessment with advice.