How does Debt Counselling Work?

Are you overwhelmed with multiple credit card payments, personal loans, and possibly your bond or car repayments? It can feel like you’re drowning in debt with no hope in sight. Each month, you barely scrape by, making minimum payments that seem to get you nowhere.

But there is a way out of your current situation. Debt counselling is a practical, legal solution designed to help you regain control of your finances and work towards a debt-free future.

This blog will explain how debt counselling works, providing you with a comprehensive understanding of the process, its benefits and some common myths surrounding it.

What is Debt Counselling?

Debt counselling, also known as debt review, is a process regulated by the National Credit Act (NCA) in South Africa. It is aimed at helping over-indebted consumers manage their debt more effectively. Through debt counselling, you receive professional assistance to restructure your debts, making them more manageable.

Here’s a step-by-step breakdown of how debt counselling works:

Initial Assessment: The process begins with a comprehensive financial assessment. A registered debt counsellor will review your financial situation, including your income, expenses, and outstanding debts. This helps them to understand your unique circumstances and determine whether you qualify for debt counselling.
Debt Restructuring Proposal: Once the debt counsellor has a clear picture of your finances, they will develop a tailored debt restructuring proposal. This proposal outlines a new payment plan that reduces your monthly debt repayments to an affordable level. It may involve extending the repayment terms or renegotiating interest rates with your creditors.
Negotiation with Creditors: The debt counsellor will then negotiate with your creditors on your behalf. Their aim is to get them to accept the proposed payment plan. This step is crucial as it ensures that your creditors agree to the new terms, providing you with legal protection against any further action.
Court Approval: After reaching an agreement with your creditors, the new payment plan is submitted to the court for approval. Once the court approves the plan, it becomes legally binding for all parties involved. This means that your creditors cannot take any further legal action against you as long as you adhere to the new payment terms.
Monthly Payments: Under the new agreement, you’ll make a single, consolidated monthly payment to a Payment Distribution Agency (PDA). The PDA will distribute these funds to your creditors according to the approved plan. This simplifies your payment process and ensures that your debts are being paid off consistently.
Regular Reviews: Throughout the debt counselling process, the debt counsellor will regularly review your financial situation to ensure that the payment plan remains suitable. If your financial circumstances change, they can adjust the plan accordingly.

Debt counselling offers several benefits that can significantly improve your financial situation:

Reduced Monthly Payments: By restructuring your debts, you’ll have lower, more manageable monthly payments, giving you breathing room in your budget.
Legal Protection: Once your payment plan is approved by the court, you’re protected from further legal action by your creditors.
Interest Rate Reduction: Debt Counsellors negotiate with your creditors to potentially lower your interest rates, reducing the overall cost of your debt.
Single Payment: Managing one consolidated payment is easier and less stressful than juggling multiple creditors.
Debt-Free Future: With a structured plan in place, you’ll be on a clear path towards becoming debt-free.

What are the Common Myths About Debt Counselling?

1. Myth: Debt Counselling Means You’re Blacklisted

Reality: Debt counselling is not the same as being blacklisted. While under debt review, your credit profile will reflect your participation in the process, but this is not permanent. Once you’ve completed debt counselling, the flag is removed, and you can rebuild your credit.

2. Myth: Debt Counselling Costs Too Much

Reality: The costs associated with debt counselling are regulated and are included in your restructured payment plan. The benefits of reduced payments and legal protection far outweigh the costs.

3. Myth: Debt Counselling is Only for Extreme Cases

Reality: Debt counselling is for anyone struggling with debt, whether your situation is moderate or severe. Early intervention can prevent your financial situation from worsening. Use our free debt calculator to see whether you are over-indebted.

If you’re struggling with debt, don’t wait until it’s too late.

Reach out to Debt Rescue today and let us help you take the first step. We pride ourselves on our expertise and trustworthiness. Our counsellors are highly qualified and accredited by the National Credit Regulator (NCR). With 16 years of experience in helping South Africans manage their debt, we have a proven track record of success. Our process is transparent, and we prioritise your financial well-being above all else.

Are you struggling with debt while earning an income? If so, let our expert debt counsellors provide a no-obligation, cost-free assessment to consolidate and reduce your monthly repayments for immediate financial relief.