Debt REVIEW: Consumers paid R10 billion to creditors in 2020

The Covid-19 pandemic negatively impacted debt review and counselling, but despite the harsh economic climate consumers continued to repay debts and save hundreds of thousands of rands in interest during lockdown.

This was according to Benay Sager, chairperson of the National Debt Counsellors’ Association, who provided an overview of the status of the sector at the recent Debt Review Awards.

Between April and June 2020 new debt review counselling applications declined. Debt counsellors usually receive between 120 000 and 140 000 new applications a year, but the dropped to around 100 000 in 2020. There has been a modest increase since June.

Of the people already in debt review 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 said the South African debt counselling industry was “extremely impactful” because it was 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 0000 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 said.

He said the regulator had 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 from needing to go under debt review. 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Sager said that the industry was well regulated and achieved results, although the outdated renumeration model for payment distribution agencies needed to be probed. He added 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.