If you find yourself with too much debt, you might think about applying for debt counselling. But what is debt counselling and how is that going to help you get your finances back in order?
We find out the process you will go through, and also the costs of debt counselling.
What is debt counselling?
“The purpose of Debt counselling is to offer an alternative remedy to over indebtedness than the traditional methods such as Administration and Sequestration could offer,” said the Debt Counsellors Association of South Africa (DCASA).
Debt counselling was first introduced by the National Credit Regulator (NCR) in 2007, and according to the NCR has helped hundreds of thousands of people.
The DCASA also explain that over R2 billion has been paid to creditors, due to this process. Everyone can apply for it, but there is certain criteria which needs to be met, and so not everyone qualifies for debt counselling.
There is a difference between debt consolidation (the act of turning all your debts into one debt), and debt counselling (where a counsellor helps your with your payment plans).
If you want more information on debt consolidation, click here. Or if you want to see a handy table outlining the differences between the two, click here.
You need to be over-indebted as stated by the National Credit Act (NCA) in order to qualify.
The NCA has not made there guidelines clear, but a qualified debt counsellor will be able to make that distinction.
If you are accepted there are six general steps when it comes to debt counselling, as outlined by the DCASA.
You will have to send all your financial details to your debt counsellor. This includes your monthly income, monthly budget, and debt commitments.
You will also need a copy of your ID, payslip, and latest debt statement on all your debt.
Once the debt counsellor has gone over all your information, and has found that you are over-indebted, they will set up a consultation with you.
Each debt counselling company has different methods on consulting: either over the phone, or in a face-to-face meeting.
During the consultation the Debt Counsellor will verify your budget and your existing debt commitments.
A new budget will be agreed and the amount available for debt repayment will be determined. The Debt Counsellor will also provide you with details of all the costs as well as an interim repayment plan.
The DCASA highlights that this is when you officially apply for Debt Counselling.
The debt counsellor will then contact all your credit providers, as well as the credit bureau to verify your debt. Your debt counsellor will also tell the credit bureau that you are under debt consolidation.
This listing on with the credit bureau will stay there until all your debt has been paid off. The minute you have finished paying, your name will be taken from the list.
Your debt counsellor will also try to make payment arrangements with your credit providers, where possible.
“The Credit Providers may accept the proposals and if all of them do, then a Consent Order will be obtained from a magistrate court,” said the DCASA.
However, if one or more of the credit providers does not accept the repayment plan, then the debt counsellor will go to the magistrate’s court for a final verdict.
This is where you will get your final repayment plan. Once the plan has been accepted, and run through the Payment Distribution Agency, you are on your way to paying off your loans.
The DCASA explains that the point of this plan is so that you pay one amount everything month to the debt counsellor, and they in turn, pay off your creditors.
Once your debt has been paid off, the process ends.
The fee structure
The NCR has a prescribed fee structure for what a deb counsellor is allowed to charge you.
- They are allowed to charge you an application fee,
- A rejection fee of R300, if you do not meet the requirements for debt counselling,
- A restructuring fee for people whose applications have been accepted. This can be up to a maximum of R6000,
- A monthly ‘after-care’ fee of 5% of the monthly instalments, with a maximum of R400,
- If you leave before paying the restructuring fee, you are liable to pay 75% of that fee,
- And the legal fee for consent of R750.
If you want to see how the whole process works in a video, the Intelligent Debt Management (IDM) Group has a one for you, click here.
If you feel you need debt counselling, Justmoney has partnered with the IDM Group to help you. You can apply for debt counselling by clicking here.