Navigating SA’s Rising Debt Crisis: Which Debt Relief Option Works Best For Who?

This year saw many South Africans grapple with mounting debt burdens, exacerbated by factors such as interest rate hikes, skyrocketing fuel prices, and an ongoing energy crisis. According to Transunion, credit card and non-bank personal loan originations spiked by 27.1% and 24.9% respectively year on year.

To navigate these troubled waters, individuals often explore various debt relief options, with two prominent strategies at the forefront: Debt Review and Debt Mediation. But which of these approaches is better suited to your unique financial situation?

Rynhardt de Lange, Director and Head of Legal at Milaw Legal breaks down the key aspects of both Debt Review and Debt Mediation to help consumers make an informed decision.

Debt Review, also known as Debt Counselling, is a structured debt management process regulated by the National Credit Act (NCA) in South Africa. It is designed to assist over-indebted consumers in restructuring their debt obligations in a more manageable way. Under Debt Review, a Debt Counsellor assesses your financial situation, negotiates with creditors to lower monthly payments, and creates a single, affordable repayment plan.

De Lange explains that the debt review strategy is best suited for individuals who find themselves overwhelmed by debt, especially those facing possible legal action from creditors. “Debt Review provides legal protection against asset repossession and legal actions, thereby alleviating the bulk of the anxiety of debt stress to those in dire financial straits”

“Debt Mediation, on the other hand, is a debt resolution process that involves creditors and debtors negotiating directly to reach mutually agreeable repayment terms. Unlike Debt Review, Debt Mediation is not governed by specific legislation. However, it is a flexible approach that allows for personalised negotiations with creditors to reduce interest rates or extend repayment terms,” said de Lange.

One of the key differences de Lange said was that debt mediation offers more flexibility and less formal restructuring than Debt Review, making it a valuable option for those looking to retain more control over the process. “Debt mediation is ideal for individuals with less severe debt problems who can negotiate directly with creditors,” said de Lange adding that determining which debt relief option is right for you depends on your financial circumstances.

De Lange offered the following tips for deciding which way to go:

Understand the Difference: Debt Review, also known as Debt Counseling, helps those with overwhelming debt by restructuring and gradually repaying it while protecting them legally. In contrast, Debt Mediation involves negotiating your payment terms with creditors using a professional mediator.

Assess Your Financial Situation: Determine your financial objectives, whether prioritizing quick debt elimination or establishing a structured repayment strategy for better manageability.

Consider Your Financial Goals: Clarify your financial objectives: prioritize becoming debt-free quickly or opting for a structured repayment plan for manageable payments.

Evaluate Eligibility: Debt Review is for those struggling with monthly debt payments, while Debt Mediation suits those with a lump sum for creditor negotiations.

Consult with Professionals: Consult specialised financial or legal professionals for guidance on the most suitable debt relief option for your situation.

“While one is a formal legal and regulated process, the other is more flexible, allowing consumers to retain more control. Ultimately, the choice between Debt Review and Debt Mediation hinges on your financial circumstances, the severity of your debt, and your negotiation capabilities. To make an informed decision, consult with a reputable financial advisor or legal expert with expertise in debt management laws,” said de Lange.