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How to get out of debt in South Africa

Getting out of debt starts with one honest list. From there you have a few routes, depending on whether your income covers your minimum payments. Here are the steps, and your rights along the way.

This guide explains the National Credit Act in general terms. It is not advice on your own debts.

Step 1: Face the numbers

List every debt in one table: the creditor, the balance, the interest rate, the instalment, any arrears, and whether the debt is secured. Use your statements and your credit report.

Include store accounts, credit cards, loans, vehicle and home finance, cellphone contracts, money owed to family, and any loan from an unregistered lender. Then add up the total you owe and the total monthly instalments, and compare the instalments with your budget.

Step 2: If money is left after the minimum payments

Pay the minimum on every debt, and put everything extra into one debt at a time.

• The snowball: repay the smallest balance first. You see progress quickly, which keeps you going.
• The avalanche: repay the highest interest rate first. You pay the least interest in total.

When one debt is paid, add its instalment to the next one.

Step 3: Talk to your creditors early

Do not wait until you have missed payments. Ask for a payment arrangement, a settlement amount or frozen interest. Check whether the account has credit life insurance, which may pay if you have lost your job or become ill. Get every agreement in writing.

Step 4: If you cannot pay all your debts on time

You may be over-indebted. The formal options are:

• Debt review. A debt counsellor registered with the National Credit Regulator assesses your finances and proposes a restructured plan to your creditors. It is made an order, and you make one payment a month through a payment distribution agency. You may not take new credit while under review. At the end you get a clearance certificate.
• An administration order, for a total debt of up to R50 000.
• Sequestration, as a last resort.

The fees a debt counsellor may charge are limited by a guideline of the regulator.

Know your rights

Salary deductions. An emolument attachment order needs a court. It must leave you enough to live on, and all such orders together may not take more than a quarter of your basic salary. Check every order on your payslip.

Debt collectors. A debt collector must be registered. A collector may not threaten, harass or shame you, and may not collect a debt that has prescribed.

Loan sharks. A lender who keeps your bank card, PIN or ID as security is breaking the law. Report unregistered lenders to the National Credit Regulator and the police.

This guide is based on Chapter 7 of Managing Your Money, which works through a full debt list and each option in detail.