If you are one of the many consumers who have taken the big step of entering into debt counselling to unburden themselves of debt - congratulations! Your journey to financial freedom has begun.
In this article we outline the things you should and should not do to make this a successful ride.
Tip: To apply for debt counselling, click here.
Debt counselling do’s
Be cooperative
To make the most of the benefits of debt counselling, it’s essential to cooperate with your debt counsellor. He or she will be able to help you stay on track, and will assist you with sage advice in the event of any changes in your finances.
Rudolph Mahoney of WesBank gives the following example. “If and when extra funds like bonuses are received, consider settling small debts and increase payments on other debts to try and settle other debts quicker.”
Communicate your plans
While under debt counselling there are actions you can take that can impact your finances dramatically. You can, for example, still rent a property, as property rental is not a credit agreement.
However, you will need to talk to your debt counsellor to see how much surplus you have, explains Debt Review Centre. You don’t want to overspend, so be sure to stick to your budget.
Be transparent about your assets
If you do have some available assets, such as a car, furniture, etc, and you want to pay off your debt more quickly, then you do have the option to return or sell those assets.
“Consumers can also opt to place any shortfall under debt review,” adds Mahoney.
In either event, it’s best to first speak to your debt counsellor, to understand the impact this might have.
“Maintain communication to ensure your debt counselling is on track. Ensure that you maintain the consent order instalments or the accepted debt review payment proposal,” says Mahoney.
Debt counselling don’ts
Don’t apply for more credit
Mahoney says that you should not apply for more credit – which will likely be rejected, take on non-essential expenses, or use any credit facilities still in place, such as store or credit cards or an overdraft. These will only increase your existing balance.
First National Bank (FNB) concurs. “You may not incur any further credit while under debt review, except to consolidate existing credit agreements. This is only possible with the written consent from you, your debt counsellor and the bank.”
Note that lenders are also not allowed to give you credit if you are under debt counselling, as stated in the National Credit Act.
Don’t choose your savings over your debt
Going through the debt counselling process takes perseverance and discipline, and many people want out before the process is completed.
Forget about saving. If you do have any investments then it is generally recommended that all available funds are used to repay your debt.
“Any available funds in an investment account should be distributed among your creditors to reduce your overall debt,” says FNB.
Don’t be a spendthrift
If you enjoy the high life, that will have to stop. Mahoney says that you should get rid of luxury items to afford your debt repayments. Unnecessary holidays and entertaining nights out are among this list.
Use these funds instead to further settle your debt, and set a little aside to reward yourself as you reach significant milestones in the process.