Over two million South Africans have benefited from debt counselling since 2007, taking back control of their financial affairs and repaying over R120 billion to lenders. This money flows back into the economy, generating economic activity.
According to the National Debt Counsellors’ Association (NDCA), there are currently some 250,000 consumers in debt counselling, and they repay around R15 billion to creditors annually.
“Rather than being dormant as lenders try to recover it, this money is re-lent many times over and helps to grow the economy,” explains NDCA chairperson, Benay Sager.
“At the same time, while in debt counselling, assets such as houses and cars are protected, so consumers don’t endure the stress and humiliation of having these repossessed. It’s a win-win.”
The industry directly employs around 10,000 people in an ecosystem that includes lenders, debt counsellors, credit bureaus, payment distribution agencies (PDAs), technology providers, legal practitioners, regulatory bodies and others.
Sager says the South African payment system is the only one of its kind, allowing efficient collection and distribution of repayments, 90% of which goes to pay down consumer debt. In other countries, the mechanisms are less efficient and only 40% – 50% of the money collected is used to pay down consumer debt.
Encouraging financially constrained consumers to get help with managing debt also helps address a lack of savings, an issue with which many South Africans struggle. Higher interest debt is repaid first, and this potentially frees up some income for a rainy day fund.
“Debt counselling is effective because it costs less than alternative methods, gets money flowing back into the economy and is the most pro-consumer option for responsible people to pay back debt, when their circumstances may not otherwise allow it.”
He hopes potential future amendments to the National Credit Act will allow debt counsellors to restructure debts that currently fall outside the Act. These include levies, municipal rates and school fees.
This would recover much-needed money owed to schools and municipalities and directly benefit the economy.
“Debt counselling is more than a way to help consumers get back on their feet. It enables lenders to recover what they are owed. With personal debt at or near record levels and an underperforming economy, a functioning, efficient debt counselling sector is good for consumers and the country.”