Are you drowning in debt and ready to make a change?

Do you dedicate a large portion of your income to repaying debt? Are your creditors hounding you for payments that you simply can no longer afford to make?

If so, then you should consider debt counselling - a way to effectively crack down on debt, free up a good portion of income, avoid becoming blacklisted or having you assets repossessed and, of course, becoming debt free.

Although debt counselling can help resolve a serious debt problem it is not a simple solution and will take time, commitment and dedication to ensure success. In addition, you cannot enter into new credit agreements while under debt counselling or review. This is to ensure that you stick to a new repayment plan as set out by your debt counselor with the greatest chance of success.

A brief look at debt counselling

Debt counseling is when a debt counselor evaluates the financial status of an individual by taking account of all their debt and monthly expenses to decide if debt counselling fits their situation. The debt counselor will the re-arrange the debt repayments and contact the customers creditors to inform them of the debt counselling and to arrange longer repayment terms and lower interest rates where possible.

Once a new debt repayment plan has been made the plan will become binding through a court order which ensures the creditors and the debtor stand by their commitments. The debt repayment plan and your monthly debt installment will be forwarded to a payment distribution agency who will accordingly distribute the money to all your creditors.

Is debt counselling right for me?

Every South African has the right to apply for debt counselling but, certain requirements as laid out by the National Credit Act must be met for you to qualify. This requirement is that your debts must exceed your income after living expenses have been paid.

Your assigned debt counselor is expected to identify whether you meet the criteria for debt review and, if so process your application and begin the debt counselling process. Your counselor will have to do everything in their power to provide you with a decent standard of living while your under debt review and prevent any loss of assets or legal action from being taken against you.

The major benefits of debt counselling are:

  • You will be protected from harassment by creditors like credit card providers and debt collectors and this is enforced by a court order granted by a Magistrates court
  • You will regain control over your finances and will become debt free if your stick to the agreed monthly installment
  • You will only be responsible for making one installment towards the repayment of all your debts which simplifies your debt and takes a burden off of your shoulders
  • You will prevent the repossession of your assets and from being blacklisted
  • You will reduce unsecured debt repayments by up to 50% and secured debt payments by 30% by extending the loan terms and possibly getting a lower rate
  • Your single monthly repayment towards debt will be lower than your monthly debts combined before debt review
  • You will be issued with a clearance certificate once your debts are repaid and you have control of your finances again

The difference between debt consolidation & debt counselling

Many people confuse debt counselling and debt consolidation but although they are both approaches designed to deal with debt, they are very different. Debt consolidation is where you would combine all of your existing debt and consolidate it into one larger loan.

You would then be left with only one monthly installment to make on your debt but, you may incur early repayment fees and may end up paying more for the consolidated debts in the long run if the interest isn't appropriately reduced.

With debt counselling you will have a professional counselor arrange a new repayment structure and you will only make one payment every month but, unlike with debt consolidation your existing debts will remain as they are with each creditor being paid by the Payment Distribution Agency chosen.

Your responsibilities before & during debt review

Before formally applying for debt review you must declare of your assets and liabilities as well as honestly declaring any and all household income and monthly living expenses. If you are not completely honest during this process you may be refused debt counselling services or you may end up entering into an agreement that is not sustainable and will cause you financial distress.

While under debt review you must inform your debt counselor if your financial circumstances change in any way. This includes an increase or a decrease in income. You must also abide by the repayment plan and make the required monthly repayment towards your debt.

You should also note that the debt counselling provider will charge for their services and that you are responsible for these fees. The recommended fees for any debt counselling services have been laid out by the National Credit Regulator and we recommend that you review these before applying with any service provider.

Where to find a service provider

Loans South Africa have provided you with a comprehensive list of debt counselling service providers below. While each lender essentially provides a similar service you can choose to work with one which you believe meets your needs most precisely or perhaps, has the experience and track record that shows they are reliable and results driven.

What you'll need to apply for debt counselling

When you apply for debt counselling you will have to provide the latest statement from all of your creditors, your ID documents, payslips, 6 month bank statements, proof of address and, your marriage certificate. You should also bring a statement indicating the balance on your mortgage and a list of any additional debt you may have among family and friends.

This will allow the debt counselor to review your financial situation accurately and develop a suitable repayment plan that will help you free up income every month and ensure you are able to afford living expenses while simultaneously becoming debt free.