Dealing with over-indebtedness

Debt can create a snowball effect that generates even more debt. When debt repayment pressure becomes too much to handle and you cannot meet all your monthly obligations, you are officially classified as “over-indebted.”

Let us take an example: Say you earn R20,000 per month, but your expenses and debt repayments add up to R35,000 per month. You “try to make a plan” by borrowing more using your credit card to cover your household expenses like groceries and other basic living costs, including other debts and installments. As a percentage, this works out to 175%, way over normal (a normal, healthy, sensible manageable benchmark which is 30% -40%). Once it increases above 50%, that is a red flag for you to start taking drastic action to avoid stressful overwhelming devastating financial consequences.

Eventually, you somehow skip a payment maybe school fees—as you hope for some relief from your “cash flow problem,” and you start dreaming of some rich uncle or aunt who will leave you millions or, better yet, win the lottery. Just one more unforeseen crisis could push you over the edge into a complete financial disaster that will take you years to recover from.

stressed out Mom - cannot repay her mounting debt
Stressed-out Mom who is “trying to make a plan”

What are the predictors, signs, or indicators that you are facing financial trouble? This is how you know:

Predictors of Financial Trouble

Loss of household
No planning for the
Spending behaviour
Use credit card to repay debt
Selling leaveCancellation of
short-term insurance
Spend more than incomeUse of home loan equity to repay debt
Resign to access
Cancellation of
Medical Aid
No Emergency fundToo much debt
DivorceNo savingsCost of living keep increasingMove to short-term debt
Self-employedNo emergency savingsFunding a bad lifestyle habitsSubmit or present inaccurate information on a loan application so as to access more debt

Budget Red flags

  • No emergency savings
  • When your lifestyle lures and tempts (literary dictates) you to take out more debt
  • When you feel the need to borrow more money on a regular basis to balance your budget
  • Credit card not settled in full every month, just struggling to even pay the minimum amount required
  • Living beyond your means
  • No budgetary tools used to manage money

Are you over-indebted? Take the test!

These are Red flags don’t wait until it is too late – Take action!

I receive threats because of arrears on installments including letters and notices and incessant phone calls from creditors
A Sheriff or deputy Sheriff has served you with court orders or summons
A Sheriff has visited your property to repossess your assets
I borrow from friends and family
I borrow on a regular basis from microlenders/cash or payday loans
I have garnishee orders against my salary (paystub)
I use my credit card to buy groceries, to pay other basic living costs, debt, and other installments
These are Red flags don’t wait until it is too late – Take action!


0 ticks, so far so good, you are not over-indebted. Keep your credit record healthy by paying your accounts on time and do not take on additional and unnecessary debt

1 or more ticks, or “yes.” You are in trouble and over-indebted. Take action now!

What are my options and what steps can I take to remedy the situation?

You actually have two limited options or choices in this matter, either you do it alone (voluntary arrangements) or you take the legal route, and in this case, just so you know, your financial woes will not remain a secret anymore.

Let us explore how to start the process.

Voluntary Arrangements (DIY)

obtain your credit report from credit bureau

1. Get a credit report from the credit bureau

You must be open and honest with yourself about your financial situation; no more playing mind games, and you must become objective when handling this situation.

Get all the information required to make an informed decision, which means getting your credit report from a credit bureau (most commonly known and used in South Africa are Transunion, Experian, Compuscan, and XDS). For our international audience, please check your credit bureaus in your local area.

It is advisable to obtain your credit record from all of them, as to give you an overview of your credit health. Your credit report contains the following information:

  • Credit history (how long you have had this account)
  • Conduct of your account (how you repay your accounts)
  • The status of your account (good/positive or bad/negative)
  • Additional negative information such as judgements, defaults, bankruptcies, and notices are also included

Credit providers heavily rely on and use credit reports to help them decide whether or not to lend you money and/or what interest rates to charge you.

Sidenote: According to the South African National Credit Act of 2007, you have the right to a FREE credit report once in a 12-month period (cycle) from each of the registered credit bureaus. If you do not agree with the information on your credit report and you are struggling to get it corrected, contact the Credit Ombudsman at for help.

2. Do an honest transparent budget

Where possible, either reduce expenses or increase your income, and perhaps try to deal with the debt yourself through voluntary arrangements. Cut back on unnecessary items or costs. Obtain and print your monthly bank statement. It never lies and it tells the whole truth—nothing other than the truth of how you conduct your own finances.

Go through all of the debits (cash outflows) line by line (use a highlighter if you have to) and account for what, why, when, how you spend the money, and whether or not they are still currently necessary or not.

If you really want to take it to the next level, you can create an Excel spreadsheet that specifies and examines the actual “reasons and emotions” that you experienced during each transaction.

Budget Workbook Level up
Budget Workbook – Level Up!

In this instance, you will be able to determine with clarity exactly where your money is going. If and where possible, go back 6 months prior. When you are serious about solving the glaringly obvious warnings and would like to fully recover from the money woes, you will be pleasantly surprised at what you find down the rabbit hole.

I know for certain that the penny will drop for you when you finally become aware of how you have been conducting your finances. The harsh lesson can only be learned by falling on one’s sword. It is unfortunate but certainly very true.

What is the point of paying, for example, for a subscription that you hardly ever use or never benefit from? Worse, if the amount continues to increase and you are unaware of it because you are not paying attention to your finances.

At this point, you can also reconcile ALL of your debts with what is reflected on your credit report; if there are irreconcilable differences, file a dispute with the credit bureau in question so that it reflects correct and accurate information.

Communicate with the creditors yourself and renegotiate payment options. You can do this, just pluck up the courage and take ACTION!

This step alone will empower you and enable you to deal decisively with your money challenges, which will save you a lot of time, money, and heartache!

3. Act early

If you are in trouble or detect trouble, do not wait any longer. Act now! This is a very important step because if you delay further and the creditor starts taking legal action against you, it may be too late for a legal option such as Debt Counselling to assist and protect you. However, it depends on how severe the legal action is against the debtor.

Don’t be the first to know but the last to act!

Face reality- The legal route

If an agreement cannot be reached via voluntary arrangements, you must come to terms with the fact that your situation will not be hidden under the rug anymore. All of your future options will almost certainly include lengthy legal processes, more money, and more documentation.

1. Debt Counselling vs Debt Consolidation

It is worth mentioning that people often confuse Debt Consolidation with Debt Counselling(DC). You may ask, “What is the difference?”

Debt consolidation refers to the situation in which the affected party (the debtor) attempts to resolve the financial problem by approaching the credit provider to see if they can combine ALL of their debt installments into a single repayment amount that is less than what they are currently paying, at a lower interest rate, but here is the catch: they are unaware that a longer or extended repayment period has been added to the equation.

It must be emphasized that this is not a permanent solution; it is a deception that makes you think you have solved the problem meanwhile you continue to let the financial ship sink even deeper.

Debt consolidation statistics show that over 80% of the time the debt grows back. 

Why? because the person hasn’t changed their behavior. 

Let us explore Debt Counselling


When you approach and would like to apply to have the debt counsellor (DC) take up your legal matter, first establish whether they are registered with the National Credit Regulator (NCR). The (NCR) has a list of all approved and registered debt counsellors (DC) in their database which is available for open scrutiny by the public.

Create a New Budget

The debt counsellor (DC) will assess your financial situation and certify whether you are indeed over-indebted or if there was some recklessness in issuing the credit to the applicant in the beginning. A certificate is then issued to that effect and then a payment plan is worked out that will be submitted to all creditors.

Negotiate lower repayments with creditors

In this case, there is always back and forth between creditors and the DC which is why the application process drags on. Think about it, the creditors will neither be happy nor satisfied that they are about to lose huge sums of money during this negotiation process, so it is not a pleasant sight or experience for the creditors.

Refer the matter to the Magistrate Court

The matter is then referred to the Magistrate Court in a case where all the creditors agree to the new payment plan then the Magistrate grants a consent order to confirm the agreement. If the creditors do not agree, they can oppose the matter and the debt counselling application can be thrown out. Either the process has to start all over again or other options are sought.

Repayment Plan

Once all are on board (both creditors and DC agree) then the applicant will be declared under debt review and by then the Magistrate has granted the consent order. The good news is that while under debt review, no creditor will be able to take legal action against you unless you break the agreement and skip a payment.

It is said that Debt Counselling can improve your cash flow by about 40% – 50%!

Some information you must consider when applying for Debt Counselling:

Outside help is all you need

  • DC is not free – Administration, legal, and aftercare fees are all added and worked into the debt repayment plan
  • All debt is included (home loan, personal loan, credit card, car loan, overdraft, store card)
  • Once you are declared “under debt review” you will no longer have access to credit and be aware that interest will accumulate
  • Your name will be listed as “under debt review” as a note against your record by the credit bureau
  • Debt Counselling is the only legal process supported by the National Credit Act that offers protection to the debtor against legal action from creditors – meaning your assets will never be repossessed unless you deviate from the agreement.
  • Once the debt has been repaid in full then you are then issued with a “Clearance Certificate” from the DC which would then be submitted to the credit bureau which is then instructed to lift the note from your record.
  • The whole purpose is to restructure the debt repayments with an overall objective of repaying the debt in full.
  • There are options to pay faster and there are no penalties for settling the debt earlier

While the DC process has its advantages, be sure to understand all the implications clearly.

Other legal options to consider include:

2. Administration

The Debt Collectors Act 111 of 1998 has replaced and amended the Magistrate Court Act of 1944, which “provides for the exercise of control over the occupation of debt collectors and legalizes the recovery of fees or remuneration by registered debt collectors.”

Debt Administration involves a legal process whereby a Magistrate court is approached to reduce your installments and extend the repayment terms but it is only limited to a maximum debt of R50,000.

The court appoints an Administrator who will deduct your required living expenses and divide equally the balance left over amongst creditors. Only the court can make an order to place you “under Administration” and grant an Administrator to literally take over your management of finances and the creditors cannot take legal action against you.

When you are placed “under administration,” you have to keep an eye on the Account statements and keep asking questions if something does not make any sense.

Be aware that Administrators are not required to register with a regulatory body, they can pretty much do as they please.

We’ve heard in the past rumblings of overcharging and creditors not being paid and the debtor remaining under the Debt Administration for extended long periods of time.

The role of the Administrator is to draw up a Distribution Account every 3 months. The Account must show how much money was received, how much was deducted as fees and costs, and how much was eventually paid over to each of the creditors owed. By so doing, you are ensuring that you are holding the Administrator to account and avoiding being overcharged and/or ending up being heavily indebted.

Administration Fees and Costs

The administration process is not the best option at all and can be ridiculously expensive.

Did you know?

  • Interest rates are reduced to only 15,5%
  • The repayment terms are usually extended open-endedly. No wonder debtors can stay “under Administration” for a long period of time which is worsened by the fact that Administrators are not regulated
  • Interest adds up because creditors are only paid every three months, i.e. it effectively means that they get paid only 4 times in a 12-month cycle, thus the extended repayment terms
  • Keep in mind that there are 12,5% administration fees, VAT, and distribution costs payable which can easily add up
  • Again that there is also no way of hiding it from your employer, as payments are deducted directly from your salary.
  • There are no rate benefits

Move with extra caution when considering this option!

3. Voluntary or Forced Sequestration (File for Bankruptcy)

If you are so over-indebted that you have not been able to reach a satisfactory conclusion that meets with the creditors’ reasonable proposals (agreeable repayment terms) then you could be referred for voluntary sequestration (voluntarily surrender your estate with the property and declare yourself bankrupt).

File for Bankruptcy

It effectively means that under the Insolvency Act, 24 of 1936 you are declared insolvent or bankrupt and have to prove a benefit to the credit providers that you owe.

Your matter is then taken to a High Court Judge who will grant an order to appoint a Trustee who will oversee the entire process whereby all your entire estate (Assets and Liabilities) are handed over, meaning all your assets such as property, cash, moveable assets are all required for you to qualify for voluntary sequestration – in other words, all your assets are sold and if successful all your debt is expunged (wiped out).

If you do not have assets such as property then you have to pay either by cash lump sum or moveable assets or both for the application.

In this case, the High Court Judge will only grant you a sequestration order if you can prove a benefit to the credit providers with every 20c in a Rand owed.

If voluntary sequestration fails then, it’s all hell breaks loose henceforth, that is when the creditors take legal action against you to declare you bankrupt/insolvent when there aren’t enough substantial assets owned to cover their debt – called forced sequestration.

You cannot access credit while declared insolvent/bankrupt.

You can apply for rehabilitation once you have paid all your debts in full, and once rehabilitated you can apply for credit and you can start a new life once again. It can years to recover.

This decision cannot be taken lightly, as all your possessions are stripped away from you, and you remain with nothing. Unless all the other legal routes have been considered and have been exhausted, this option must be the last resort.


It is quite clear that it is important to start the process quite early and get out of debt voluntarily. It is the best option and with fewer headaches, and heartache, and avoids costly fees. Otherwise if left too late, the journey might be too long, too costly, and cause discomfort.

Thank you for visiting our site and taking the time to read this article be sure to leave a comment below and we will certainly engage with you.