You can Pay Creditors Directly Without a PDA

Paying your creditors directly instead of relying on a Payment Distribution Agent (PDA) is a path that many consider for better control and timely payments. However, it requires careful planning to avoid missteps that could lead to legal complications or disputes with creditors. Below is a detailed guide to successfully managing your payments while ensuring all providers are compensated correctly and on time.

1. Understand the Role of a PDA and Why Direct Payment Can Be Complex

A Payment Distribution Agent collects funds from you and distributes them to your creditors under the debt review process. They ensure compliance with repayment agreements. If you choose to handle payments yourself:

• You assume responsibility for distributing payments accurately.
• Failure to pay the correct amounts on time can lead to creditors terminating agreements or escalating the debt.

As of 2024, there are three registered Payment Distribution Agents (PDAs) in South Africa. These agents are regulated by the National Credit Regulator (NCR) and are responsible for collecting payments from individuals undergoing debt review and distributing them to creditors based on the agreed repayment plan.

Using a PDA ensures compliance with repayment agreements, provides streamlined payment processes, and minimizes errors or delays that could arise from incorrect references or manual mismanagement. For those seeking a centralized and automated way to handle their debts, PDAs remain an effective choice.

If you choose to manage payments directly, it's crucial to stay vigilant about changes like updated account reference numbers that creditors may assign during the debt review process, as these can impact proper fund allocation.

2. Obtain Necessary Documentation from Your Debt Counsellor

Before transitioning to paying creditors directly and terminating PDA services, it’s essential to gather all relevant documentation to manage your payments accurately and avoid disputes. Here’s what you should request from your debt counsellor:

1. PDA Proposals
   These documents outline the repayment schedule, showing the amounts allocated to each creditor. It’s the foundation for ensuring you pay the correct amounts to each creditor according to the agreed-upon debt review plan.
2. Creditors' Confirmation of Balance
   This document verifies the outstanding amount for each debt, ensuring you have the latest figures. Use it to confirm payment targets and prevent over- or underpayment.
3. Creditors’ Acceptances
   These are agreements from creditors acknowledging the repayment terms. They serve as proof that your creditors accepted the repayment plan proposed under the debt review.
4. ❗⚠️Cascading Plan with Payment Escalations ❗⚠️
   A cascading plan shows how payments will escalate over time. For example, as smaller debts are settled, their allocated funds are redistributed to larger debts. This plan ensures your overall repayment remains aligned with your financial capability while expediting debt repayment.
   • Why It's Important: A cascading plan prevents misallocation of funds when debts are paid off and helps you maintain compliance with your debt review order.
   • How to Use It: Regularly update and cross-check it against creditor statements to ensure payments follow the intended sequence.

These documents together will enable you to track payments, address discrepancies, and communicate effectively with creditors, ensuring a seamless transition away from PDA services.

3. Verify Banking Details and Correspondence Channels

Using outdated or incorrect information to make payments can lead to delays and complications. Take these steps:

• Find Email Contacts: Use the confirmation of balance to identify email addresses for each creditor’s account management team.
• Verify Payment Details: Contact each creditor to confirm the correct banking details.
• Communicate Intentions: Inform creditors in writing that you will be making payments directly, and request confirmation of the proposal and payment details.

4. Coordinate with Your Debt Counsellor About Fees

Debt counsellors typically charge a monthly aftercare fee as part of the debt review agreement.

Under the National Credit Act (NCA), the National Credit Regulator (NCR) sets guidelines for debt counselling fees. The aftercare fee is typically capped at a percentage of your monthly repayment amount (often around 5%, up to a maximum of R450 per month)

This fee covers a range of essential services to ensure smooth management of your repayment plan and compliance with legal requirements. Here’s what the fee typically entails:

5. Maintain Accurate Records of All Payments

A lack of proper documentation can lead to disputes. To prevent issues:

• Obtain Statements from Credit Providers: These will help track payments and compare them to the repayment schedule outlined in your debt review order.
• Cross-Check Payments: Ensure that the amounts reflected on creditor statements match the repayment schedule.
• Monitor Progress: Keep detailed records of all payments made, including receipts and correspondence.

6. Address Discrepancies Immediately

If any creditor reflects a different balance or indicates that payments are not being applied correctly:

• Raise a dispute with the creditor immediately.
• Provide proof of payments.
• Request an updated statement to verify corrections.

Key Considerations Before Making a Decision