DebtDebt Counselling

Finally, Debt Counselling Fees Explained!

One question that we often get asked is to explain the debt counselling fees. Over-indebted consumers approach debt counsellors to restructure their debts for them, making them more affordable on a monthly basis. The National Credit Act (NCA) introduced debt counselling in 2007 as a legal process, designed to help over-indebted consumers.

The National Credit Regulator (NCR) governs all registered debt counsellors in South Africa and also set up the fee caps and other debt counselling guidelines. In South Africa, debt is a huge problem (read about that HERE). Debt counselling is common solution as it helps consumer to afford their monthly debt repayments.

Let’s look at the debt counselling fees

The debt counselling process involves a number of fees. Here is a breakdown of the full debt counselling fees, along with their caps and what each fee is for.

  1. Application Fee

How much is it?

The once-off application fee is R100 (ex VAT).

What is it for?

The application fee is paid to submit the documents to the NCR to inform them that the consumer has applied for debt counselling.

When does it get paid?

Month 1.

  1. The Restructuring Fee:

How much is it?

The restructuring fee is equal to the new, reduced monthly debt repayment, up to a maximum of R8,000 (ex VAT) for a single applicant and R9,000 (ex VAT) for dual-application for clients married in community of property.

What is it for?

The restructuring fee is paid to the debt counsellor for all of the upfront work done for the client. This includes compiling all documents from the client and the credit providers, working out a new proposal for the client and negotiating with the credit providers.

When does it get paid?

Month 1.

  1. The Monthly After-Care Fee

How much is it?

The monthly after-care fee is equal to 5% of the new monthly debt installment, up to a maximum of R400 (ex VAT), for a first 24-month period, thereafter reducing to 3% (to a max of R400 (ex VAT)) for the remaining debt counselling period.

What is it for?

The monthly fee is paid to the debt counsellor for all of the support and access the consumer has during the process. The debt counsellor will also conduct an annual review for each client to get the most up to date information and access if the client is coping.

When does it get paid?

Every month.

  1. Legal and Sundry Costs

How much is it?

This varies among the various debt counsellors, but is often equal to the restructuring fee.

What is it for?

The debt counsellor does a lot of the legal work in terms of preparation for the NCT or Magistrates Court. The National Consumer Tribunal (NCT), lawyers or Magistrate’s Court fees are included in this cost.

When does it get paid?

Usually month 2 but can be in the first month under certain circumstances.

Important To Note

The client’s new payment plan includes all debt counselling fees and costs and are not over and above the new, reduced monthly debt instalment. Let’s look at an example. Client A used to pay R10,000 per month towards his debt, this was reduced to R3,500 by his debt counsellor. Client A will pay R3,500 from the first month going forward. The first month’s payment will go the debt counsellor for the restructure fee, after which the second month will be used for the legal and sundry costs. From month 3 going forward, the R3,500 will be distributed to all of the Client A’s credit providers based on the negotiations that have been concluded.

Why Do The Debt Counselling Fees Seem So Expensive?

The upfront fees seem like a large expense; however, the debt counselling process is a complex one and debt counsellors do a lot of work to help put clients into a better financial position. If debt counsellor’s use the Debt Counselling Rule Set (DCRS) system, they often get credit providers to reduce interest rates, sometimes down to 0%. This helps the client afford their new payment and the interest and fee savings outweigh the initial cost of the debt counselling process.

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