Debt Counselling Explained

Most South Africans would benefit from having their debts counselled by undergoing a debt counselling process in order to improve […]

Debt Counselling

Most South Africans would benefit from having their debts counselled by undergoing a debt counselling process in order to improve their credit scores. TransUnion South Africa reports that by the year 2021, the default and distressed borrowing rates in South Africa will have reached 50%, making its citizens some of the worst borrowers in the world.

Additionally, the impact of COVID-19 has led to a drop in the use of comfort borrowing, which will go from -4% in 2019 to -17% in 2020. People in financial trouble might benefit greatly from the services offered by debt counselors. Debt counseling can help you become a better consumer and get you out of financial trouble.

What is Debt Counselling? 

Debt counselling is the process of advising clients on how to better handle their finances and reduce their debt loads, as well as how to set and stick to reasonable spending limits. Debt counselling offers services to help people get their finances in order so they don’t get blacklisted. Those who are having difficulty making their monthly debt payments should seek the help of debt counselors.

Who are debt counsellors? 

Debt counselling agencies assist people and businesses in avoiding being blacklisted as a result of financial difficulties. Their job is to speak with the borrower’s creditors on their behalf and try to get the interest rate lowered and any late fees waived.

Are Debt Counsellors Regulated? 

Debt counsellors are supposed to register with the National Credit Regulator, therefore, they are regulated by the National Credit Regulator (NCR) as mandated by the National Credit Act of 2007. The NCR ensures that debt counsellors adhere to the consumer rights of the individual undergoing Debt Counselling. 

When using debt counsellors make sure they are registered with the NCR to ensure your safety from scams and frauds. You can use debt counsellors that are recommended by the National Debt Counsellors Association (NDCA) and you can expect these debt counsellors to:

  • be registered with the National Credit Regulator, 
  • be affordable and offer reasonable legal fees to clients, 
  • provide monthly statements and continuous client support, 
  • use a registered payment distribution agency to ensure clients funds are protected, and
  • use the NCR approved debt counselling rules system. 

5 Steps of Debt Counselling

1. Client Application

This is a step that a client-first takes to get in touch with a debt counsellor. Clients get free debt assessment to determine their level of debt and whether or not debt counselling is a solution that they should use. There are other alternatives available for borrowers and debt counselling may not be the best solution for every borrower who is over-indebted. 

Debt Counselling is for those that cannot afford to meet their current debt obligations and have been missing out on payments. Otherwise, if that’s not the case, services such as debt management, debt rescue or debt mediation can be utilised instead of debt counselling. After the debt assessment process, a potential client can choose to start the application process formally. 

2. Client Protection 

After a successful application, a debt counsellor starts working on protecting the client from creditors and the credit bureaus. Creditors and credit bureaus will be informed via the national Regulator’s debt help system that a client has applied for and is undergoing Debt Counselling. 

This shows that a client is starting to rehabilitate and he/she is about to get their affairs in order. Creditors will view this action as an act to the right part. Now creditors will deal directly with the debt counsellor. As the borrower, you won’t be harassed anymore. 

3. Rates Negotiation 

Financial status changes on a regular basis for the good, the bad, or the ugly. When finding yourself looking for the services of a debt counsellor, it is rare to find that your finances have been positively impacted. Debt counsellors will renegotiate with creditors on the amount that you will pay on a month to month basis. 

The new quoted amount will be affordable to you and will cater for your current financial status. A fixed repayment duration will be negotiated. Interest that has accumulated on your credit account will be renegotiated in your favour. 

4. Quoted Monthly Figure

Debt Counsellors will help determine an affordable repayment figure and terms. The figure is based on striking the balance between the ability to make timely payments and the overall debt. The figure comes as a single monthly instalment. 

You will make a payment to the debt counsellor via debit order or debit check. The money paid will be distributed to creditors that are included in the debt counselling plan for the duration of the plan. The repayment may last up to 5 years but may last for a couple of months depending on the amount of debt and repayment schedule. 

5. Issuance of a clearance certificate 

After repaying all the creditors, a clearance certificate will be issued to you. This certificate confirms that you have successfully paid all the accounts listed under the debt counselling plan. A clearance certificate will also be sent to the credit bureaus so that an update can be made in favour of your profile. 

Benefits of using a debt counsellor

Debt counsellors come with a debt management plan to help clients with their debt issues. With a consistent monthly payment, clients are able to benefit from using a debt counsellor. At some point, clients’ accounts end up getting paid up and they can now afford to get new credit or restore their old credit. 

By using the services of a debt counsellor you, 

  • Become debt-free within 5 years, 
  • Payments are simplified by making one payment every month, 
  • Credit Score gets improved, 
  • Get reduced interest rates, 
  • Can get a late fee waiver, and 
  • Get lower monthly payments. 

Conclusion 

 Debt Counselling is a tool that can be used to unload debt that one cannot cope with. Making use of a debt counsellor may be necessary if one is over-indebted. The good thing about debt counselling is that before the debt counselling process commences, a debt counselling company contracted will first run a free assessment of whether or not one needs a debt counselling service. Therefore, the service is only available to those that need it.


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