Understanding Debt and Credit
Updated: 4 days ago
Learn what to check before borrowing and where to seek help if repayments become difficult.
You need a new appliance, receive an offer for a personal loan or consider buying something on credit. The monthly instalment may look manageable, but how much will you pay altogether, and what happens if your circumstances change?
Credit allows you to receive money, goods or services now and pay later. Debt is the amount you owe. Credit can help you manage a necessary purchase, but it can also become difficult to repay, particularly when interest and fees add to the cost.
South Africa’s National Credit Act 34 of 2005 (NCA) regulates many consumer credit agreements. It provides protections relating to credit information, responsible lending and assistance for consumers who are over-indebted. It does not apply to every arrangement in which one person owes another money.
What should you check before taking out credit?
Before accepting a loan, store account or other credit offer, ask yourself:
Do I need to borrow this amount? Consider whether you can reduce the amount, save towards the purchase or wait.
Can I afford the repayments? Work out what remains after your regular expenses and existing debts. Leave room for unexpected costs rather than assuming every month will go according to plan.
What is the total cost? Check the amount you are borrowing, interest, fees, any applicable insurance and the total amount you will repay. A smaller monthly instalment can mean paying more overall if the repayment period is longer.
Can the instalment change? Check whether the interest rate is fixed or variable and what this could mean for your repayments.
What happens if I pay late? Understand the possible additional costs and the steps the credit provider may take if you fall behind.
For credit agreements covered by the NCA, a credit provider must give you the required pre-agreement information and quotation before you enter into the agreement. Read these documents rather than relying only on an advertised instalment.
Must a credit provider check whether you can afford the credit?
Under section 81 of the NCA, a credit provider must take reasonable steps to assess matters such as your understanding of the proposed credit, your repayment history and your existing financial means and obligations before entering into a credit agreement covered by that provision. The Act prohibits reckless credit granting.
You must also answer the credit provider’s assessment questions fully and truthfully. Do not leave out existing debts or other financial obligations to make an application appear more affordable.
Even when credit is approved, it is worth doing your own budget. Approval does not guarantee that a repayment will remain comfortable if your income or expenses change.
What is a credit report, and why should you check it?
A credit report records information about your credit accounts and repayment history. Credit providers may use credit information when assessing an application.
You have the right to access information held about you by a credit bureau and to challenge information that is incorrect. The NCA provides for one free credit report per year from a credit bureau, on request. If you find an error, raise it with the bureau and keep a record of the dispute.
Checking your report can also help you identify accounts or enquiries you do not recognise.
What if you are struggling to repay your debts?
If you are finding it difficult to meet your repayments, do not ignore the problem or wait until you receive court papers. Taking action early may give you more room to consider your options.
Start with these practical steps:
List what you owe. Record each credit provider, the outstanding balance, monthly instalment and payment date.
Review your budget. Identify the amount you can realistically afford after necessary living expenses.
Contact your credit providers. Explain your circumstances and ask whether a repayment arrangement may be possible. Get any agreed changes in writing.
Keep your records. Save statements, correspondence, payment confirmations and any notices you receive.
Seek appropriate assistance. If you cannot manage your credit repayments, consider speaking to a debt counsellor registered with the National Credit Regulator (NCR).
Be cautious about borrowing more money simply to cover existing instalments. It is important to understand whether doing so would improve your position or increase your overall debt.
What is debt review?
Debt review, also called debt counselling, is a formal process under section 86 of the NCA for assessing whether a consumer is over-indebted and, where appropriate, seeking a rearrangement of qualifying credit obligations. A registered debt counsellor assesses your financial position and may propose a repayment arrangement through the process provided for in the Act.
Debt review is not debt cancellation. Interest does not automatically stop, fees may apply, and entering debt review generally restricts your ability to obtain further credit. It is also not a remedy that automatically covers every debt or stops every enforcement process. For example, an application cannot include a particular credit agreement if the credit provider had already taken the enforcement steps specified in section 86(2) before the application.
Before applying, ask the debt counsellor to explain the fees, process, expected repayment arrangements, restrictions and possible outcomes. Check their registration on the NCR’s official register.
What if you receive a demand or court papers?
Read the documents immediately and note any deadlines. If you receive a section 129 notice under the NCA, it is an important warning that a credit agreement is in default and that the credit provider may pursue enforcement if the matter is not addressed. The notice may identify options for resolving the default.
Do not ignore a summons or assume that contacting a debt counsellor automatically stops court proceedings. Seek legal assistance promptly to understand what the documents require and which options remain available.
Before you borrow, remember:
Check the full cost. Be realistic about repayments. Ask for help early if you are struggling.
Official Resources and Further Reading
National Credit Act 34 of 2005: Read the legislation governing consumer credit, including pre-agreement disclosure, reckless credit and debt review.
National Credit Regulator: Consumer Rights under the National Credit Act: Find a plain-language guide to credit information, quotations and help with over-indebtedness.
National Credit Regulator: Debt Counselling Brochure: Learn about the debt review process and its implications.
National Credit Regulator: Register of Debt Counsellors: Check whether a debt counsellor is registered.
Disclaimer: This article provides general information about South African law and does not constitute legal or financial advice. The information may not apply to your particular circumstances. If you need advice about your situation, consult a qualified legal practitioner or an appropriate legal advice service.
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