If you’ve ever been in a tight financial situation and struggled to pay off your debt, you would stumble upon something called ‘debt counselling’. This process is also referred to as debt review, which is a legal process regulated by the National Credit Regulator (NCR).
This legal process was put in place to help South Africans regain control of their financial situation. Debt is a normal part of life but being over-indebted is something you should avoid. What is debt counselling, and do you need it?
The debt counselling process can be your saving grace when you’ve stretched your finances too thin. And when you’re unable to meet your monthly debt obligations. The process will help you manage your debt more effectively while teaching you how to be responsible with your money, during and after the process.
You will have to register with a debt counsellor, like Debt Rescue, to enrol in the process. Your debt counsellor will help you take control of your finances by formulating a budget and renegotiating with creditors.
The process alleviates a lot of stress that comes with debt by minimising your monthly repayments so that you can afford your monthly necessities. The debt counselling process also protects your assets. So you don’t have to worry about creditors bashing through the door, and repossessing your prized possessions.
The debt counselling process will help you reset your credit score and give you a second chance at a stronger financial position. You will have to rebuild your credit score to a healthy status once you’re done with the debt counselling process.
If you’re paying more towards your debt and don’t have enough for monthly expenses, you need debt counselling and debt review.
The first signs that you’re over-indebted
There are a few signs that will indicate whether you’re over-indebted. These signs will creep up on you over time and before you know it, the debt monster has got hold of your finances.
- Reckless credit card use. Using your credit card too much is a good indication of overspending. Although it’s a convenient way of shopping, the huge interest rates attached to a credit card are what haunt us in the end.
Swiping your credit card recklessly will send you straight to being over-indebted.
- Spending your entire paycheque as soon as you get it. This is a typical sign of overspending that generally leads to more debt. Spending most or all of your income on debt repayments means that you won’t have any money left for living expenses. This generally leads to more debt and will set you back even further.
- No savings or emergency fund. Saving money is an important part of being financially stable. Saving helps you plan for the future and secure a strong financial position.
- You don’t differentiate or understand the difference between ‘good debt’ and ‘bad debt’. Good debt is money borrowed that will help you earn more money over time. This includes purchasing a house, education, small business etc.
‘Bad debt’ is money borrowed that is generally used to pay for the desired lifestyle. This may include purchasing a car, expensive vacations, eating out or takeaways, or overindulging in material expenses.
- Creditors have started taking legal action against you, adding more pressure to your outstanding bills. A court judgement will remain on your credit report for five years. However, the judgement will be removed from your name if the full outstanding amount has been settled.
- Creditors start calling you regularly in an attempt to settle the debt. You should attempt to solve the problem as soon as possible.
Advantages of debt counselling
Only make one monthly repayment
One of the great benefits of being under debt review is that all you have to worry about making one payment. You will only be responsible for making one lump sum payment every month.
All your debt repayments will be made on time, every time, and all your legal fees will be taken care of as well.
Your assets are protected
You don’t have to worry about creditors repossessing your assets because you’re behind on payments. Debt counselling protects your assets from being reclaimed by creditors.
Lower monthly repayments
As part of the process, your debt counsellor will approach all your creditors and renegotiate the monthly repayment amounts. You will meet all your monthly repayments while still being able to afford monthly expenses.
No more harassment from creditors
Your debt counsellor will communicate with creditors so that you don’t have to. You can sit back and stop worrying about creditors calling you about late repayments.
Reduce your credit
Once you’re under debt review, you won’t be granted more credit. This prevents you from making more debt. Your credit profile will be flagged, allowing any creditor to see that you’re under debt review.
Once you’ve completed the debt counselling process the flag will be removed, and you’ll have to rebuild your credit score.
Learn how to work with money
Your debt counsellor will provide you with your own personalised monthly budgeting plan. You will have to submit all your monthly expenses to your debt counsellor. They will then analyse and reallocate your spending needs.
After you’ve completed the debt counselling process you will have the necessary money management skills to keep you out of financial trouble.
Disadvantages of debt counselling
You need to qualify
Your debt counsellor will have to assess your financial situation before you’re eligible for debt counselling.
Debt counselling firms may not be legit
Only firms that are registered with the NCR may act as legitimate debt counsellors. You can do a quick check by asking for the registration number and looking it up on the NCR website.
Not all debt may be covered
If a credit provider has already taken legal action against you, the debt owed to that credit provider will not be included in the debt counselling process. You will have to pay that amount separately from the debt counselling process.
The debt counselling process
1. Find a debt counsellor. Debt Rescue has been rated as one of the top debt counsellors in South Africa.
2. Provide your payslips, ID and current monthly debt repayments to your debt counsellor. You will also have to provide your monthly living expenses such as groceries and petrol.
3. The debt counsellor will calculate whether you are over-indebted and establish whether this process will benefit you.
4. The debt counsellor will work with you to calculate how much you need for living expenses and how much you can pay to creditors.
5. Your debt counsellor is responsible for contacting all your creditors on your behalf and ensuring that all your repayment amounts are correct and in order. They are also responsible for contacting the credit bureau and listing you under the debt counselling process.
The debt counselling process is not the same as blacklisting. Debt counselling provides you with protection.
6. Once all of the creditors agree to the new repayment terms, a legal ‘consent order’ will be put in place. This means that no creditor, that agreed to the new repayment terms, will be allowed to change their repayment structure.
7. When a creditor does not want to agree to the new proposed terms, the debt counsellor will have to approach the magistrate with the proposed debt repayments. The debt counsellor will make a case for you in court where creditors usually accept the new terms. As long as they are reasonable.
8. Once everyone is happy with the new repayment plan, the debt counsellor will provide you with your new repayment arrangement.
9. Only make one monthly payment towards the Payment Distribution Agency (PDA), who will be responsible for splitting that amount among all your creditors. All you have to do is to make sure that you don’t miss that monthly lump sum payment. The PDA won’t be able to pay your creditors without that payment.
10. Once you’ve paid off all your debt you will be presented with a clearance certificate and you will be removed from the programme.
Debt Rescue has over 11 years of experience in the industry, helping more than 30 000 people become debt-free. Best of all, you pay what you can afford with Debt Rescue.
Use our Debt Calculator to see if you need help in becoming Debt Free!