If your finances are spinning out of control and you’re battling to pay your bills and debt while trying to make ends meet, then debt counselling could help you to get a grip on your finances again, says Nobantu Mtsweni, debt counsellor at Legal & Tax – South Africa’s leader in affordable legal cover and tax services.
She helps us look at how debt counselling works and also the pros and cons:
What is debt counselling?
Debt counselling is a legal process where you apply to have your debt restructured so that you can pay household expenses and still be able to pay off debt at a reduced instalment at each month.
What are the benefits of debt counselling?
- It helps you to regularly pay off your debt at a rate that you can afford.
- It means you will not make your debt situation worse by getting into more debt.
- It gives you a plan for the future.
- No more threatening letters, rude phone calls or harassment from creditors.
- You deal with a sympathetic debt counsellor as you pay off your debt rather than needing to deal with creditors directly.
- Interest rates can be re-negotiated with creditors.
- You won’t face the threat of legal action.
- You will have a manageable household budget that will allow you to pay for life’s necessities.
- Your assets will be safe from repossession or from being seized.
- You will learn a lot about managing money so that you will know how to stay out of the debt trap in the future.
What are the drawbacks?
- You can’t apply for more credit or use existing credit facilities.
- You may pay more interest as a result of paying your debts back over a longer timeframe.
- You have to pay a fee to the registered debt counsellor.
- If some of your creditors have taken legal action for late or non-payment of your accounts, those debts cannot be included under the debt counselling processes.
How do I get into the debt counselling process?
You can enter the debt counselling process by approaching a counsellor who is registered with the National Credit Regulator (NCR).
How does the process work?
The debt counsellor will take care of your debt restructuring process for you, which will culminate with seeking a consent order for new payment agreements. There is no guarantee that your creditors will agree to the proposals made on your behalf by the counsellor. In that case, an application will have to be made to a court to force your creditors to accept less than what they want in line with your financial circumstances.
Picture from West Coast Surfe/mood board/REX