Debt counselling seeks to protect the dignity of the consumer while simultaneously satisfying the needs of credit providers. It is debt relief for the consumer, but the consumers still meet their obligations. Essentially, the process allows the consumer to consolidate debt into one affordable monthly instalment, as opposed to various monthly account payments. Debt Counselling is not, however, a debt consolidation loan, but rather the debt counsellor negotiates with all the consumer’s creditors to restructure their payment plans, group all of this into one payment, and then when the consumer pays their one monthly instalment each creditor is paid individually via a payment distribution agency.
Positives of Debt Counselling
Since debt counselling was created chiefly for the interest of the consumer, there are many positives you can enjoy once under the process of debt counselling. These positives are;
- Your assets concerning any accounts put under debt counselling are protected from legal action by your creditors.
- You have a debt management system in place governed by law and facilitated by professionals.
- Peace of mind, as the debt counselling process will consolidate debt into one single monthly instalment.
- Debt relief, as your monthly instalment is considerably smaller than the sum of your previous individual payment.
- All payments to your creditors are facilitated by an independent third party payment distribution agency, not an individual you are forced to trust
- You will be able to meet all your monthly expenses and obligations, while meeting your debt obligations as well
- At the end of the debt counselling process, you are now debt free with no lasting record of your being under debt counselling with credit bureaus
Process of Debt Counselling
Step 2: If you are considered to be over-indebted by the debt counsellor, your creditors, as well as the credit bureaus, will be made aware that you are entering the debt review process.
Step 3: Once your debt counsellor has a full overview of your financial situation, they will draw up a restructured payment plan, which will consolidate debt into one instalment for all your creditors, and send it to them for acceptance.
Step 4: If all your creditors accept the new payment plan, it comes into effect; otherwise, your debt counsellor has to seek a court order to bring the new payment plan into effect.
When you should consider Debt Counselling
Debt counselling, as a process, requires discipline, openness and consistency on the side of the consumer, qualities which you can apply to your financial situation before going under the debt review process to know whether you need it or not.
Strictly speaking, only over-indebted individuals can go under debt counselling, so how do you know if you are over-indebted? Essentially, over-indebtedness is when your monthly living expenses and instalments to your creditors exceeds your monthly income. If you cannot see it mathematically, it becomes clear when you start to live via payday loans, month after month. It can be when you can no longer keep track of all your accounts and need to consolidate debt into one payment, or when your salary runs out a lot sooner than you expected it to and you can no longer fulfil your responsibilities, or even when you start to search phrases such as ‘debt relief’, ‘debt rescue’, ‘debt help’, ‘debt free’ and similar things on the internet. Those are all clear signs that it is time to seek a debt counsellor to help you assess your financial situation and advise you.
The role of a Debt Counsellor
Debt Review is conducted by a debt counsellor. There are various debt counselling companies in South Africa such as Debt Rescue, DebtBusters, Debt Wise and many other NCR-approved debt counselling companies. The counsellor’s responsibility is to conduct a financial assessment to conclude whether a consumer is over-indebted or not, ensure a proper negotiation is made to reduce the instalments and interest rates of the consumer, and to facilitate the process of debt review until the consumer is debt-free.
On a broader scope, it is also the function of a debt counsellor to teach the consumer to be more debt wise and ensure they never get into such a situation again.