The difference between ‘good’ and ‘bad’ debt review

Earlier this month (Nov 2022), Capitec sent out a warning to its customers about false advertising by certain debt counsellors: “Have you ever been promised immediate debt relief or a payment holiday that doesn’t affect your credit score? If it sounds too good to be true, it probably is, so think twice. There is a lot of fake news about debt review and debt counsellors in the market.”

There are dubious adverts put out by certain debt counselling companies that make false promises and do not fully explain the consequences of debt review.

These adverts, which appear on social media through debt counselling lead generators such as, have resulted in people who would not necessarily benefit from debt counselling finding themselves committed to a debt review process.

City Press has received complaints from readers who say they have made enquiries, sent the relevant information and then discovered they are listed with creditors and credit bureaus as being under debt review.

While affected consumers are lodging complaints with the National Credit Regulator, this appears to be taking a long time to resolve (City Press is still waiting for a response from the regulator). In the meantime, these consumers are unable to access credit and are expected to pay fees to the debt counsellor.

Oliver wrote to City Press and said: 

I got lured into debt counselling by promises of lower payments [slashed interest rates], not knowing my name would be blacklisted. For two months, I have been paying R4 800 and I’ve checked with one of my creditors, only to discover that I’m now in arrears, meaning they haven’t been paying.

Lebogang wrote: “I entered into debit review, thinking that it was debt consolidation. I’ve been trying to exit but I see that it is impossible.”

Capitec commissioned research via the Meraki research company, which highlights a number of challenges prevalent within the debt counselling sector.

The research finds that 70% of clients do not know the difference between debt counselling and debt consolidation, and clients do not understand the debt review cost or that they cannot access credit under debt review, and 10% of the clients do not know who their debt counsellor is.

“These issues range from miscommunication and misrepresentation to lack of understanding of options, and lack of awareness of the debt counselling process and consequences, which, together with unscrupulous conduct from some debt counsellors, appear to be creating some serious challenges for clients,” says Capitec.

Unfortunately, these bad practices are undermining the good work done by debt counselling.

Reader Stuart wrote to us about his debt review experience: “It’s been two years of financial freedom that could have been depression and high blood pressure. I’m officially off the programme and would recommend it to the entire South Africa.”

Capitec’s research found that 31% of clients are happy with their debt counselling process and, importantly, more recent applicants show a higher percentage of satisfaction.

Debt counselling is a lifeline for those who genuinely find they cannot meet their monthly repayments without going into default. It can protect assets such as their home and car from being repossessed. However, consumers need to understand what they are entering into and what their obligations are.

DebtBusters chief operating officer Benay Sager agrees that there are misleading adverts by debt counsellors, but feels that Capitec is putting the entire industry in a bad light and, in doing so, discouraging clients who would benefit from debt review.

Once a client enters debt review, the bank would not be able to bring legal action and the debt counsellor could negotiate a lower interest rate for the client.

Sager says: 

It does not help to educate the consumer around fake news; rather, it creates the context for a reader to distrust debt review and debt counsellors who are regulated in terms of the National Credit Act and have a crucial role to play in helping to rehabilitate consumers who are in this situation.

In its statement, Capitec did make some alarming comments that once you enter debt review, you may not access credit for 10 years. The debt counselling rules system is designed to resolve debt within five years.

According to DebtBusters, the average time for its clients to exit debt counselling and receive a clearance certificate is 55 months.

If a consumer wished to purchase a big-ticket item such as a house or car after exiting debt review, the banks would look for six to 12 months of responsible payment behaviour after debt review. The average period would be six years before a consumer could purchase a home, for example.

Capitec says the 10-year figure relates to the fact that a large percentage of clients go under debt review but then, over time, due to nonpayment, debt review is terminated and sent to external debt collectors.

“Due to the costs of debt review, they may be further in debt on termination. Our monitoring of current trends suggests that many clients who go under debt review today will not have settled their existing credit 10 years from now.

“We suspect that the client conduct here is in part driven by a lack of understanding of what the process entails, which in turn influences the conduct seen.”

Ultimately, debt review is like most things in life – it works if done properly, but it is not a silver bullet to your financial woes.

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  1. This one is my favorite so far. I especially enjoyed how debt review is such a foreign concept to most consumers.