What is Debt Counselling?
Debt counselling, also known as debt review, is a legal measure that can be used by people who are struggling with their debt repayments to obtain some relief. Introduced in 2007 via the National Credit Act, it allows people who are struggling to pay their monthly debt to get help from a debt counsellor.
A debt counsellor is registered with the National Credit Regulator and is an expert in dealing with debt.
How Does Debt Counselling Work?
When you apply for debt counselling, a Registered Debt Counsellor will assess your financial situation by looking at your monthly income, your monthly living expenses, and your monthly debt obligations before recommending a plan of action. In other words, the debt counsellor will do a lifestyle audit in which certain budgetary changes will be recommended before a plan of action is agreed upon. The plan includes asking your creditors to allow you to pay a lower monthly installment at a reduced interest rate. The Debt Counsellor will negotiate for the best possible deal for you.
You must remember that your creditors also have rights. The negotiations must be fair, and you must therefore be willing to compromise. Your budget will be revisited,and you must carefully consider any counter proposals creditors may suggest.
The Court must also be satisfied with the rearrangements. Your repayment plan must therefore be presented to the Magistrate’s Court for approval. The Debt Counsellor will seek a Court Order. The Court Order will confirm that the new, reduced installments replace the original, contractual interest rates and repayment amounts.
A Registered Professional will assist you with:
• Drafting a workable monthly budget
• Negotiate for lower interest rates
• Negotiate for Lower monthly installments
• Restructuring of debts so that you only pay one monthly amount
• Unlike consolidation, you do not have to take on new debt with which to pay the old debt
• Taking over all communication with Credit Providers
• Obtain a Court order to provide you with Legal protection
Workable monthly budget
When applying for debt review / debt counselling, your debt counsellor will discuss your living expenses with you. Together,you will come up with a new, affordable monthly budget and debt repayment plan that is tailored to your needs. You will receive advice and guidance on how to get rid of your debt as quickly as possible and how to handle your finances to ensure a debt-free future.
Restructuring of debts
Your debt counsellor will help restructure your debt by negotiating with your creditors for lower interest rates and to extend the repayment term. This will allow for lower monthly installments which means that you will have more money to spend on your living expenses.
You will only pay one reduced monthly amount to a registered payment distribution agency (we use Hyphen PDA), who will then pay all your creditors on your behalf.
Communication with Credit Providers
Once you are placed under debt review, your creditors may not harass you.
While under debt review your debt counsellor will take over all communications with your creditors on your behalf.
To get the legal protection, your debt counsellor will refer your application to the Magistrate’s Court for consideration. The court will consider the repayment plan and will make it an order of court if it is satisfied with it.
If you abide by the terms of the debt review, your creditors may not take legal action against you and your assets will remain protected.
After paying off all your debt, you will receive a clearance certificate confirming that you are debt free. This will allow you to have your name cleared at the credit bureaus and you will qualify for credit again.
If you have a bond that forms part of debt review, you may still qualify for a clearance certificate, despite having a balance on that bond account. Simply settle all unsecured debt to qualify. Once your debt counsellor verifies that all other debt has been settled, a clearance certificate may be issued.