Debt Counselling: A Simple (But Complete) Guide for 2019
Ever heard of the term Debt Counselling? In this article, we will tell you everything you need to know about this life-changing process. Whether you are struggling to repay all your debts due to the high South African cost of living or you have defaulted on your current financial obligations, below we are going to tell you how you can deal with this situation. We will also tell you how debt counselling will relieve the pressure of over-indebtedness.
As we are living in a time of local and global financial crises, many of us have debts that are difficult to manage. Most South African consumers become over-indebted who are looking for financing to cover existing debts. When a consumer fails to repay their debt obligations within time, or the total debt repayments monthly become more than his net income, this situation in South Africa is also known as being over-indebted
Many people are still unfamiliar with the term debt counselling and how it works. So let us first explain and discuss what debt counselling is.
What Is Debt Counselling?
Debt counselling, also known as debt review, is a regulated process of assisting consumers who are struggling with their debt. Debt counselling uses different measures like budget advice, restructuring of instalments, negotiations of reduced interest rates and settlement negotiations. In South Africa, Debt counselling was first introduced by the National Credit Act in 2007.
We as your debt counsellor will assess your financial situation and declare you overindebted if you are unable to pay your debts. You will enjoy protection from all types of legal actions for 60 days during this process. This 60-day protection is from the date of application. All your accounts which you have with credit providers will then get restructured by your debt counsellor. You will then only have a single manageable instalment to pay. The debt counselling is final once a court order gets granted. Your creditors will now not be able to take any further legal action against you and your assets are now protected. This protection will only apply as long as you pay according to the new arrangement.
Why Debt Counselling Is Better Than Debt Consolidation?
Debt counselling is better than debt consolidation because there are no high-interest rates added on your debt. You’re repaying your old debt instead with lower interest rates instead of taking new debt with a debt consolidation loan. Debt Consolidation loans with high-interest rates may drag you deeper in debt.
Debt Review Process:
When you are unable to pay your debt each month and you have decided to make use of the debt counselling process it is important to use only the services of a registered debt counsellor. Your registered debt counsellor, for example, Credit Salvage will follow the following steps through which this process works.
First of all, your debt counsellor will request you to provide us with all the details of your debt commitments and monthly expenses. This will include a copy of your id document, payslip copies for a couple of months, and recent bank and credit provider statements. This information, together with research done with the credit bureaus, will show us your current financial position. These reports will also show us a snapshot of your outstanding debt.
The second step the debt counsellor will perform an initial analysis to check if you’re over-indebted and if you would qualify for debt counselling. We do not place you under debt counselling if you are not over-indebted. At this stage, the debt counsellor needs to have all the necessary information ready and available to discuss the process with you. This discussion gets done either face to face or over the phone.
Devise A New Budget:
During the initial meeting, you will discuss your finances with the debt counsellor. The debt counsellor will look over your budget and assess it with your current debt commitments. After that, we will devise a new budget designed according to the new repayment plan. Your new budget will cater for realistic living expenses and cater to your new restructured instalment. Your application will only get accepted, once you have agreed to that plan. Here, the debt counsellor will also provide information about the costs that will form part of the process. At this stage, it is vital to get familiar with the process and discuss any concerns you might have directly with your debt counsellor.
Negotiation With Creditors:
The debt counsellor will contact all your credit providers on your behalf and negotiate with them to restructure your debts. These negotiations will include getting detailed balances, interest rates and monthly instalments. A restructured instalment will then get proposed to all your credit providers. This detailed proposal is to make the repayment on these debts more affordable and manageable for you. The Debt Counsellor will contact the Credit Bureaus and report to them that you are currently taking part in a debt counselling program. The debt review listing will remain on your credit profile until you have paid off all short term debt.
Approval Of Repayment Plan:
If all your credit providers agree to the debt counsellors proposed repayment plan, then your counsellor will get an order called a Consent Order from the Magistrate’s Court. A consent order may also get obtained from the National Consumer Tribunal. In case of any of your credit providers who rejected the restructured proposal the debt counsellor will refer the matter to the magistrate’s court to make recommendations.
Execution Of The Restructuring Plan:
Then, the debt counsellor will provide you with the repayment plan that will get submitted to the Payment Distribution Agency (PDA). The monthly payments have to be made to the PDA, which is then paid to your credit providers on your behalf. Important, Debt counsellors are not allowed to accept any payments from their clients. You have to make the payments in this arrangement until you paid off the debt.
When you have repaid all your debts, the debt counsellor will issue a clearance certificate. The debt counsellor will notify the credit bureaus that you have settled all your debt and that you are no longer under debt counselling.
Why Debt Counselling Is Important?
Under debt counselling, you will enjoy protection under certain sections of the National Credit Act. Your creditors will not be able to take any legal action and cannot threaten you anymore. You don’t have to communicate with your creditors as all your legal matters with your creditor providers will get dealt with by the counsellor.
A convenient single reduce monthly payment
In debt counselling, you will only need to pay a single instalment, every month, to the Payment Distribution Agent (PDA). The PDA then pays the creditor providers on your behalf. You will get peace of mind that your money will get used in a responsible manner to pay your creditors.
Expert Financial Guidance:
When you’re in debt counselling, you’re being advised by the professionals on how to deal with your debt crisis and your current financial situation. This expert guidance helps you to get out of debt more efficiently.
Protection From Extra Interest On Debt:
When you’re not in debt counselling, your credit providers may charge interest on the amount that’s in arrears. But under debt counselling, NCA will provide you with the Protection not only against the interest but also on all the other costs that creditors might add to the debt.
Once you have repaid all your restructured short term debt, a clearance certificated will get provided to you by the Debt Counsellor. After that, you're allowed to apply for credit again.
Secured Living Expenses:
As the debt review process is carried out by the trained professionals, they will keep your living expenses in mind while making the repayment plan. For this purpose, funds will be set aside from your income that can cover your living expenses.
Documents Required For Debt Counselling:
Following are the documents that will be required by the Debt Counsellor:
- Application Form (form 16)
- ID Document/s
- Marriage Certificate (If you’re married)
- Personal Information (a reason why you experiencing financial distress)
- 3 Months Payslips. 12 weekly payslips if paid weekly
- Full 3-Month Bank Statement
- Full 6-Month Bank Statement (If Self Employed)
- Financial Documents (If you’re self-employed)
Debt Counselling In South Africa:
In South Africa, debt counselling is governed by the National Credit ACT and regulated by the National Credit Regulator (NCR). There are many companies like Credit Salvage operating as registered debt counsellor under the National Credit Act so it is important to use only the company you feel comfortable with, has a track record and is registered.
Why Credit Salvage?
At Credit Salvage, we’re providing debt counselling services and have assisted over 600 clients since 2015. Apart from debt counselling, we’re also providing credit clearance advice and services to our customers. By using our debt counselling services, you’ll get the following benefits:
- Lowest possible interest rates.
- Professional advice and assistance throughout the process.
- Guaranteed fast service.
- Monthly detailed statements.
- Range of additional services.
- Provide a complete and thorough understanding of the process.
The Debt counselling process can make things in your life easier. It helps over-indebted consumers repaying their debt more affordable and convenient for them.
If you’re failing in paying your debts or need help to cover it, Contact Us. We will provide you with a complete step by step guide on the debt review process and we will help you to get out of your stressful financial situation. Or if you have any queries, request a call back message in the boxes located throughout our website. We will get back to you as soon as possible.