Debt Counselling – All you need to know

Debt has become an increasingly significant problem in South Africa. With COVID-19 wreaking havoc on people’s livelihoods, many people have fallen behind on their financial obligations.

However, what many people don’t know is that it is not the end of the world, and the financial stress that they face can be navigated through certain programmes. One of which is something known as debt counselling.

In this article we’re going to explore the topic of debt counselling, looking at how it works and what you can expect.

Let’s get started.

What is Debt Counselling?

Debt counselling is a process designed to help over-indebted South Africans regain control of their finances through the restructuring of their debt in accordance with a legal, approved plan.

If you find yourself in a situation where you are overly indebted and struggling with your finances, a debt relief counsellor can negotiate with your credit providers to lower your interest rates and reduce your monthly installments.

How Does Debt Counselling Work?

If your income-to-debt ratio is more than 43%, or if more than half of your income goes towards your debt repayments, you can seek help from a debt counsellor. Once you’ve taken it upon yourself to reach out to a debt counsellor, the following process is followed:

Step 1:

A debt counselor will examine the extent of your debt. This is done by measuring your liabilities and expenses against your income.

Step 2:

After a debt counsellor has concluded that you are over-indebted, he/she will begin the process of applying for a court order. This court order will halt all of your creditors from contacting you.

Step 3:

Thereafter, your chosen debt counsellor will reach out to the credit bureaus and flag you as undergoing debt counselling; this will all take place within 30 days of your application.

Step 4:

Your debt counsellor will negotiate with your creditors on your behalf to lower your interest rates on certain credit agreements, in addition to extending your payment terms.

How Long Does Debt Counselling Last?

Debt counselling will last for between three and five years, depending on how indebted you are, as well as how much you’re able to afford to repay on a monthly basis.

Each debt counselling case undergoes an individual assessment; as such, the time frame might not be the same for person A as it is for person B.

What Happens After debt counselling?

Once you have you paid all of your debts in accordance with the stipulated restructuring plan devised by your debt counsellor, you will receive a clearance certificate showing that you have successfully completed the debt counselling programme.

Once you have been issued with said certificate, your debt counsellor will send it to the various credit bureaus in order for them to remove you from their list of those under debt counselling.

 

At the end of the day, life is progressively returning to normal as pandemic induced lockdowns ease, but many people still face the bleak reality of being overindebted.

However, there are programmes out there intended to assist over-indebted consumers that are struggling to commit to their repayments; debt counselling is one these programmes that can help you restructure your debts to make future repayments more manageable.