South Africans still struggling with debt

In a recent study by Statistics SA, it was found that the civil summonses issued for debt has increased by 0.8% between January 2009 and January 2010.

The biggest contributing factors were civil summonses issued for money lent (1.7 percentage points), promissory notes and other acknowledgements of debt (1.6 percentage points - this category includes credit card debt), 'other services' and professional services (each contributing 0,9 of a percentage point).

With so many people drowning in debt and the weight becoming seemingly unbearable, many South Africans have been prompted to apply for debt counselling and have gone under debt review. Since January 2010 there have been 530 applications for this service through the Justmoney website alone.

Debt counselling is a process in which a counsellor determines whether you are over-indebted - meaning your financial commitments each month amounts to more than your income.

If this is the case, a counsellor will work out a repayment plan and propose smaller instalments over a longer period of time, and submit the proposal to the people you owe money to. Should the proposal be declined, the counsellor can visit a Magistrate's Court and force them to accept it.

Once under debt review, creditors cannot take legal action against you for 60 days and your counsellor takes on the responsibility of dealing with creditors while negotiating a payment plan. You'll also only make one payment a month, the one to a distribution agency - this money is then used to pay all your creditors.

Rudi Visser of DebtBusters warns that this is however not a "get out of jail free card" and insists that this should be an absolute last resort.

Those considering debt review must remember that once this route is taken, they will not be allowed to take on anymore debt, this includes things like home loans and vehicle finance. If the client does not follow the protocol, the plan will be cancelled and creditors will take action.

If you are struggling with debt - contact your creditors first and see if you can't negotiate a payment plan yourself.