Forget debt counselling - manage your own debt and get out of slavery

In this article, Armand Rinier argues against going under debt review. We've had 10 years' experience with debt review and most people under debt review find themselves doling out money every month that they can ill-afford. There is a better way - manage the debt yourself, pay only your most important creditors (house and car) and start a personal savings fund to carry you through future financial shocks. As Rinier points out, many of the debts that people are paying are prescribed - meaning they the debt is extinguished due to the passage of time.


Like most South Africans, I was thrilled when the National Credit Act (NCA) introduced the concept of debt counselling for people who are drowning in debt.

Sadly, after nearly 10 years of watching this circus, I’ve changed my mind about debt counselling. I am now dead against it.

I am against it because it perpetuates debt slavery. Sure, it provides temporary relief in that the debt counsellor is able to restructure your debt so you pay less every month, and in many cases will freeze legal action against you (more about that in the minute). 

But in practice, once you are in the hands of the debt counselling machine, you will likely be there forever. This is debt slavery. The debt counsellor will assess how much surplus you have each month to meet your debt obligations. Let’s say you owe a total of R250,000, not counting your mortgage bond, and the debt counsellor sees that you have a monthly surplus of R3,000. He or she will then press you to repay say R5,000 a month – which you cannot afford. You agree to this and after three or four months you are again under water. You again default on your now restructured debt repayments. You’re back where you started.

Over and above all this, you will have to pay a fee of roughly R7,500 to enter debt counselling.

Forget it. There is a better way. I call it “DIY debt counselling.”

Here’s what you do:

1. Make a detailed list of your monthly income and expenditure in order of priority.
2. Separate your creditors into “A” and “B”. Your “A” creditors are the really important ones, such as your house and your car. These are items that are essential to your basic survival and ability to continue producing an income. “B” creditors are the less important ones – the clothing, gym, prescribed debt (old debt that is written off by law, but the creditors try to collect it anyway).
3. Once you have a detailed list of your income and expenditure, you will then know what your monthly surplus is.
4. Pay important “A” creditors first. If you can't afford to do this, you won't be able to afford a formal debt relief procedure anyway. You should then be looking at ways to increase your income.
5. Before you start paying “B” creditors, start putting money into a personal savings fund. Ideally, 10% of everything you earn should go into your savings fund. Treat this as your most important monthly “expense” and you will be amazed how quickly you start building a cushion against future financial shocks and to provide for future monthly expenses.
6. If there is anything left over, you can start paying your less important “B” creditors.
7. Live according to your order of priority. Your priorities are to house, food and clothing your family. And, yes, take your wife out for a meal once a week. Only once this is covered in your financial budget should you start looking at paying “B” creditors.

This raises the obvious question: what do you do when you stop paying your “B” creditors and they issue you with a summons?

Most people panic at this point and try to make a hasty arrangement to repay the debt and avoid going to court.

My answer to this: defend! Challenge them in court. It may not even get that far. In many cases that I have seen, South Africans are paying prescribed debt (old debt or debt based on reckless lending) that they do not have to pay. Do not take calls from debt collectors. They are oftentimes trying to get you to pay old debt that they are not allowed to collect by law. They will ask you trick questions in order to get you to acknowledge the old debt, such as: if you won the lottery, would you pay this debt?

Don’t answer this gibberish. Put down the phone, or get them to send you an email.

In many ways, the Prescription Act is a wonderful piece of legislation. Let’s say you fell behind on a car payment and the bank came to repossess the vehicle. Then they still demand you pay the outstanding balance. Or you have an old overdraft with a bank that you were unable to repay. Three years has since passed and you made no repayments. This is prescribed debt! You do not have to pay it.

Stop worrying about the debt hounds and get them out of your life. The law is on your side.

For more information on how to get out of debt slavery, write to [email protected].