Among the many benefits of debt counselling is its ability to keep creditors from hounding you, leaving you with some measure of peace while you figure out how to repay your debt.
We spoke to experts to find out exactly how the process works, and its implications for both consumers and creditors.
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What are creditors and debtors?
Creditors are individuals or organisations that are owed money. Trade creditors are essentially suppliers who have provided goods or services to a consumer. Loan creditors include banks and other financial institutions that provide monetary amounts to clients, or to clients’ trade creditors on their behalf.
Debtors, on the other hand, refer to the individuals or entities that owe money. A debt usually constitutes a lump sum that is split up into monthly repayments over a specified period until it is paid off, generally with interest.
What is debt counselling and how can it help?
Benay Sager, head of DebtBusters, a leading debt counselling company, explains, “Debt counselling is a solution for over-indebted consumers who are struggling to keep up with their debt payments and cannot afford the remainder of their expenses.
“By signing up for debt counselling, consumers will get access to a legal process, as per the National Credit Act. A debt counsellor will act on the client’s behalf and negotiate lower interest rates, and an extended payment term, with their creditors,” says Sager.
What does this mean for creditors?
All credit providers who are registered with the National Credit Regulator must adhere to the debt counselling process once it has commenced. This means that they cannot take any further legal action against the consumer.
Once a consumer commences debt counselling, they will make a single monthly payment towards their creditors using a registered Payment Distribution Agent (PDA). The PDA is independent of the debt counsellor and handles payments from consumers, and distribution to credit providers. The monthly payment amount made by the consumer is aligned with the schedule to which the creditors have agreed, and this schedule is managed by the debt counsellor.
The debt counsellor is the liaison between the consumer and credit providers during the debt counselling process. They will help the consumer navigate this process and answer any queries they might have.
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