What is debt counselling?

Debt counselling is a legal process to help debtors who are experiencing financial difficulties to pay their debt. A registered debt counsellor reviews the consumer’s financial situation, approaches their credit providers, and suggests a payment plan they can afford.

Why are people choosing debt counselling prematurely?

There are many reasons for this, including being enticed with incorrect or limited information, like promises of lower interest rates. Consumers assume that debt counselling is a quick fix or a way to avoid paying their full instalments. However, the reality is that debt counselling is a serious and long-term commitment, and it should be a last resort.

 

Consumers must understand that debt counselling does not mean they can avoid their debt, because they would still have a legal obligation to pay their debt according to a court order.

 

While debt counselling can be a solution, we see it as a last resort. Here's why

Credit restriction

You are not allowed to get credit while undergoing debt counselling e.g., for 3-5 years.

Extended payment period

It may take you more time to pay off your debt because the reduction of your instalment means a longer repayment period.

Cost and fees

There are additional costs that come with debt counselling. These are determined by the National Credit Act, 34 of 2005, and debt counselling regulations.

Qualifying criteria

Some accounts may be excluded from review.

Credit score

Your credit score is negatively affected because your debt counselling agreement will be listed at all major credit bureaus.

Family impact

If you are married in community of property, both you and your spouse must apply for debt counselling. This means that both of you will not be eligible for credit while undergoing debt counselling.

How can you avoid debt counselling?

These steps could help you navigate financial difficulties and avoid the need for debt counselling.

  • Manage your debt effectively by reviewing your budget and prioritising your debt repayments.
  • Consider debt consolidation for multiple small loans or restructure your debt to extend your repayment periods and have lower monthly payments.
  • Seek short-term payment relief or make payment arrangements over a few months if you have missed payments.
  • Lastly, Nedbank-assisted Sales can help you get the best price if you need to sell your home or car.

Are you over-indebted and overwhelmed?

If you are having trouble with your debt, please contact us as soon as you can for available options.

We are here to help you find the best solution for your needs.

 

Things to consider before choosing debt counselling.

 

  • Not everyone who talks to you about lower payments or payment holidays is a debt counsellor. Contact the National Credit Regulator (NCR) to confirm if someone is a registered debt counsellor by.

  • Some debt counselling companies use automated processes to offer things like payment breaks or lower payments. Think about whether you really need help with debt repayment before accepting such offers. You can do this by talking to your bank or your creditors first.

  • Check your credit report often to make sure no one has accessed your personal information without your approval to offer you debt review as a solution without you knowing what it involves. If this happens, remember that it is against the law, and you may report them to the NCR to take legal action against them.

Remember that debt counselling is designed for when you are overindebted and have explored all other possible relief options.

 

Questions to ask your debt counsellor

All legally practising debt counsellors need to be registered with the NCR.

Debt counsellors who have helped other people successfully are more likely to be able to help you. Do careful research. Ask your friends and family for referrals and look for independent reviews or articles on the internet to help you make up your mind.

Make sure that you understand the fees you will be charged and shop around to find the right deal. Some debt counsellors charge more than others.

A payment distribution agency (PDA) plays an important role in making sure your monthly debt counselling payment is split properly and sent to each of your creditors. If the PDA makes a mistake, your creditor may end the debt counselling process.

All debt counsellors are obliged to follow the NCR Task Team's restructuring guidelines.

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