Consumers should be sensible in taking on further debt even though the debt relief bill has been signed into law, says Benay Sager, the chief operating officer of DebtBusters.
There are many unanswered questions about how the new law will work practically, he says.
It will take some time, possibly up to 24 months, for regulations to be finalised, so the law can be implemented. Taking out more credit than you can afford in the meanwhile isn't a good idea and could have long-term implications for your credit record, says Sager.
Consumers should also be aware that the new law applies only to people in a particular income group who meet specific criteria, and the debt relief is not automatic, Sager says.
Consumers will have to qualify and then submit to a process before some or all of their debt can be written off.
“There is a genuine need to help low income consumers who are over-indebted and who cannot pay back their debt. But based on over 10 years’ experience helping this client segment, we know that good counselling needs to be part of the process, so over-indebted people don't find themselves back in the same position again,” says Sager.
Once implemented, the National Credit Amendment Act will allow people who earn less than R7 500 a month and have R50 000 in total unsecured debt - excluding car finance and home loans - and who are over-indebted to apply to the National Credit Regulator (NCR). The NCR will assess each case, Sager says.
If the NCR finds the consumer is not able to repay what they owe without its intervention, it will freeze some or all of the repayments for a year. At the end of this period, the NCR will reassess the situation.
If the consumer is in a better position and able to repay their debts in five years, it may re-negotiate the period of the debt and interest rates, Sager says.
If the consumer is still unable to repay, it may again freeze repayments for a year. At the end of this period, if the consumer is still unable to settle their debts, some or part of it will be written off, he says.