Debt Counselling is the process of assessing over indebtedness and restructuring debt
This definition is according to the National Credit Regulator.
Debt counselling is an alternative to processes like administration and sequestration, when defaulting on your debt. If you believe counselling is the route you want to go, we are one of the best debt counselling firms to talk to about this.
Many people are uninformed about what the pros and cons of the debt review process are, and also exactly what counselling entails. Terms like debt consolidation, debt settlement, undergoing counselling are all a bit new to some consumers and there are a few legal aspects to the process as well. View our legal articles for more information. Then there’s the reality that finding a professional counselling agency is not an easy endeavour. So why choose us? Some also wonder where they can go for debt assessment.
It’s a serious business to get your financial matters back on track, and you need to know from the start what counselling will entail. Whether you participate in the process or not might mean the difference between keeping or losing your home and car.
To safeguard consumers, counselling was introduced through the National Credit Act (NCA) in 2007 by the National Credit Regulator (NCR).
Debt counselling is also a key component of debt rehabilitation and a crucial term in the debt review process.
The aim of this article is to give you a run-down of the advantages and disadvantages of undergoing the counselling process. Let’s kick off with the bright side. Here’s good news when it comes to applying to undergo counselling.
The advantages of debt counselling
PRO – If you are deemed over-indebted during counselling, your assets are safe, and your credit providers will find it more difficult to take legal action against you
Debt counselling is the key process that determines whether you qualify for debt review or not. The advantage stated above only applies once a consumer has actually applied to be placed under debt review with a debt counsellor . This period of sanctuary and safety from credit providers is upheld pending a debt counsellors investigation as to whether you can be deemed officially ‘over-indebted’.
The NCR defines ‘over-inbebted’ as follows: “A consumer is over-indebted when he/she does not have the means to meet all his/her debt payments at the end of a month. The Act(National Credit Act) also states that if the Debt Counsellor has completed an assessment and has reached a conclusion that a consumer will not be able to meet his/her debt commitments at the end of a month, that person is over indebted.”
Some recent court rulings on the National Credit Act have however ended in favour of credit providers , which means that in some instances, credit providers can still get at you and your assets, which is off course a risk for those undergoing counselling.
PRO – No permanent record of being listed as under debt review will be kept
As soon as you are deemed over-indebted and you officially qualify for debt review, this information is listed on your credit record, but as soon as you complete the process, this listing is removed from every consumer credit bureau data base. You are NOT blacklisted so if your do complete the entire debt review process, you exit with a clear name and are able to apply for new credit.
PRO – You’re saved the hassle of paying creditors individually. Repaying your debt is simplified with only one monthly payment.
Once counselling has been completed and a repayment plan submitted to the Payment Distribution Agency for Payment Distribution, you will only need to make a monthly payment to the Agency who will then repay credit providers on your behalf.
PRO – Your living expenses will be covered
The counselling process is where the counsellor negotiates with creditors on your behalf, and in order to so, your debt counsellor must have a thorough understand of your living expenses. So as part of the repayment agreement with creditors, there will be funds set aside from your salary to cover your living expenses. So you will not be asked to pay more money to creditors than you can actually afford.
PRO – Working through a qualified and professional debt counsellor like us will get you further with credit providers.
You might try to go it alone and negotiate with credit providers, but it’s a risk you take. Should you be declared as being over-indebted during the counselling process, you will also be protected from credit providers taking legal action against you, to a certain measure.
PRO – You will learn to manage your personal finances better
Sitting down with a debt counsellor and being advised by a trained professional on how to more effectively deal with your financial situation might lead to a new understanding of your money matters. Having undergone counselling, you might handle future financial decisions much better.
PRO – Some relief from financial pressure and mental strain of stressing over debt. But be warned, counselling is not a get-out-of-jail-free card
A measure of calm is restored to your life once you decide to resolve any nagging problem, and the same can be said for handling your personal debt crisis. You simply lessen your panic if do something about any big problem.
Taking the step to speak to a professional debt counsellor sooner rather than later might put you at ease. As mentioned before, once you’re under debt review credit providers are less able to touch you legally but this is not set in stone, and you still have repay your debts after a repayment agreement has been brokered by your counsellor.
PRO – If the counselling process proves that your credit provider is guilty of reckless lending, you have options
A reckless lending or reckless credit agreement usually consists of one or more of the following conditions, as defined by the National Credit Act:
“An agreement is reckless when: The credit provider does not carry out a proper credit risk assessment to ensure that the consumer can afford the loan
The credit provider proceeds to give the consumer the loan despite the consumer not being able to afford the loan based on the assessment conducted
The consumer does not understand his/her rights and obligations in an agreement as well as the costs involved in taking the loan. (Section 80)”
The NCA further requires any credit provider to ensure that a consumer can afford “the credit he/she applies for before granting him/her the loan or selling the goods on credit. When the credit provider fails to ensure this then the agreement can be regarded as reckless.”
To have any agreement with your service provider declared reckless, your debt counsellor will issue a proposal to a magistrate court to recommend reckless spending.
So what can the courts do for you?
“The court can suspend an agreement that has been declared reckless. It can also change the terms and conditions of the agreement, i.e. how the monies must be repaid by the consumer to the credit provider. The credit provider cannot charge the consumer any interest or fees on an agreement that has been totally suspended.” – NCA
Here’s the catch though, you can’t propose to be a victim of reckless lending if you omitted information or weren’t truthful when you were in the process of applying for credit from your credit provider. If you lied anywhere during the process of affordability assessment, you don’t have a leg to stand on in terms of reckless lending.
Whether you were economical with the truth could be proved in a court or the National Consumer Tribunal and it really revolves around the idea that the credit providers judgement was significantly impaired because you failed to provide truthful answers.
PRO – The trump card (and best kept secret) in counselling – In Duplum Rule – protects your from overzealous interest on debt
The In Duplum Rule forms part of the counselling rules system (DCRS). According to a 2014 circular by the National Credit regulator, “The DCRS is a set of rules agreed upon by credit providers that provide voluntary concessions by adjusting the contractual fees, interest rates and repayment terms on credit agreements that are restructured under counselling.”
As you fall behind on your payments, credit providers can add interest and collection costs to the money you owe.
What the In Duplum Rule does is curtail the amount of interest a credit provider can charge on an account that’s in arrears. The NCA even provides an extension on the rule by limiting not only the interest, but all other costs a credit provider might add onto the money you owe.
Make sure your debt counsellor is aware of the rule and if he or she uses the DCRS.
The disadvantages of debt counselling
CON – You might not qualify after having undergone counselling.
Most consumers do understand that they are over-committed on their debt but should a debt counsellor find you that you are not officially over-indebted after counselling, there are two options that can be considered.
How do you know you didn’t qualify?
Well a debt counsellor will issue you with a rejection letter if he/she decides that you are not over-indebted.
According to the NCR, the option a consumer has who received a letter of rejection is to head to a magistrate court themselves to apply to be declared over-indebted by court order. This needs to happen within twenty business days of them receiving the rejection letter. “In addition the consumer may request the court to have his / her agreements declared reckless and order a debt restructuring,” the NCA states.
The second option for a consumer who has been issued with a rejection letter might simply be to sit down with a debt counsellor and restructure their budget and improve their financial planning skills, with the purpose of finalizing a proposed repayment plan that could be presented to creditors.
It’s basically a process where you attempt to have your debts rearranged so if all goes well, you might, after negotiations with creditors, pay back less but over a longer term.
You might have every intention of sorting out your debt. You can follow every step on how the debt review process works and still it might all be in vain if you run into an unprofessional debt counsellor.
Professional debt counsellors look like this.
Shame of being overly indebted does not bode well if you want to ask friends, family or acquaintances who they recommend, but using word-of-mouth is probably your best option to find a good debt counsellor.
On thing you can do to ensure your debt counsellor is registered is to check this list.
Competency may vary but you can do a bit of recon yourself. Every registered debt counsellor must have registration certificate which should be displayed in a prominent position in the office.
Off course, if the counsellor is also an attorney or studying law, that might be a good sign. They should also belong to a credit industry body.
Visit the debt counsellors office and see if they are tidy and organized .
CON – No access to new credit during the debt counselling process
Yes, this is often the biggest reason overly indebted individuals decide to postpone counselling.
The NCA act is behind this and keeps credit providers from lending to any person who is in counselling.
But there is a ‘but’. And many people wonder about this. There is a loan you can take while under counselling but it is a debt consolidation loan which does not get you further into being over-indebted.
Once you apply for counselling, this is listed on your credit record, and that’s how all credit providers will know. This is only lifted once the debt review process if completed. You won’t be eligible for obtaining new credit until a debt counsellor has issued you with a clearance certificate.
This period could vary considerably and depends on the repayment plan and amount of debt, but an average is about five years for the process to be completed. Ideally, the counselling process is ended as soon as the over-indebted client is financially on solid ground and in a position to again pay monthly instalments.
CON – You will have to pay some fees while in counselling
Some legal fees will pop up in the process, like a R750 fee for a consent order, which is a contract between you and your creditors on a debt rearrangement plan. Most of these fees will however be worked into your repayment plan.
What you need to know here is that any legal fees that you need to pay throughout the entire process must be entirely disclosed to you upfront and in print by your debt counsellor before you agree to the process.
CON – Not all your debts may be covered during counselling.
If you were already in default with one credit provider who has already started legal procedures against you, the debt owed to this creditor will be exluded from the debt review process.