When money is tight, not all debts are equal. Pay the debts that can take your home, your work transport or land you a criminal penalty first, and treat store cards and personal loans as lower priority. If you are genuinely over-indebted, the National Credit Act gives you a formal way out called debt review, run through a registered debt counsellor. And never, ever borrow from a mashonisa to plug the gap. This guide ranks the debts and explains your options.
Pay these first
These are your priority debts, because the consequence of missing them is severe:
- Mortgage or bond: miss it repeatedly and you can lose your home.
- Vehicle finance: lose the bakkie and you lose your work transport.
- SARS provisional tax: penalties and interest stack up fast, and SARS has strong collection powers.
- COIDA and employer levies: non-compliance can carry criminal penalties.
- UIF contributions, if you employ staff: a legal obligation with penalties for default.
Unsecured debt, such as store cards and personal loans, is a lower priority, because a creditor cannot repossess anything without a court order first.
Debt review under the National Credit Act
The National Credit Act 34 of 2005 (NCA) provides formal debt relief through debt review, also called debt counselling:
- Apply to a registered debt counsellor. Find one through the National Credit Regulator (NCR) at ncr.org.za.
- The counsellor assesses whether you are over-indebted.
- A restructured repayment plan is negotiated with all your creditors and made a court consent order.
- While you are under review and complying, creditors cannot take legal action against you.
- A clearance certificate is issued once all the debts are paid.
The NCR consumer helpline is 0860 627 627.
There are two other routes, both heavier:
- Administration under Section 74 of the Magistrates' Courts Act suits smaller total debts, where an administrator distributes a portion of your income to creditors. It carries real drawbacks, including a long credit-bureau listing, so debt review under the NCA is generally preferable. Get independent legal advice before choosing it.
- Sequestration is formal insolvency through the High Court and a genuine last resort. You surrender assets to pay creditors, and as a sole trader your personal and business assets are all part of the estate. The legal costs are significant and it can close the door on a future business.
The mashonisa warning
Never borrow from a mashonisa, an illegal money lender, to pay other debts. Mashonisas are unregistered, and an illegal credit agreement is void and unenforceable under the NCA. The legal point is small comfort, though, because the human consequences of non-payment, intimidation, threats and document confiscation, are very real. Report illegal lenders to the NCR at ncr.org.za or 0860 627 627, and to SAPS on 10111.
Common mistakes
- Paying the loudest creditor first. The store chasing you hardest is usually the lowest priority. Protect the home and the bakkie first.
- Choosing administration without advice. It carries a long credit listing. Debt review is usually the better route, so take independent legal advice.
- Spending the SARS set-aside. Provisional tax money is not yours to use, and SARS collects hard.
- Turning to a mashonisa. The loan may be void in law, but the collection methods are not. Use a registered route every time.
Know someone who needs this?
Keep reading
Was this guide useful?
Didn't find what you were looking for?
Spotted something wrong or out of date? Email us at hello@kilnguides.co.uk.
In crisis? SADAG 0800 567 567 ·