Can you get a loan while under debt counselling?

By Harper Banks

Once you commit to debt counselling, your finances will inevitably improve. However, as your circumstances change, you may consider taking out a new loan to carry you through a difficult period.

We find out whether this is allowed, and whether it would be feasible, given the effect of debt counselling on your credit profile. We also consider alternatives to seeking further credit.

Tip: You can view your credit score for free whenever you wish, by joining JustMoney.

Is further borrowing possible?

Gareth Price, founder of Cloudworx and Investmint, and CFO at Back A Buddy, says that when you start the debt counselling process your debt counsellor helps you renegotiate your monthly instalments and reduces them to a single, manageable amount.

However, your circumstances may change over time. For example, perhaps you have been demoted at work and you now earn less each month, or maybe you’re no longer receiving an additional income from a side-hustle. Similarly, your expenses may have increased due to the addition of a new family member, an unforeseen bill, or increases in your recurring expenses, such as insurance.  

As a result, you’re no longer able to pay your monthly bills – including the instalment towards your outstanding debt – and you’re looking for a solution. Since you previously found relief in credit, you may feel the urge to take out a new loan to carry you through.

However, Price explains that, while you’re under debt counselling, you will not be able to take out any further loans or credit from a bank or financial institution.

This is because your status as an active participant in the debt counselling process will be noted on your credit report. If you apply for new credit, your chosen lender will request your credit report, see this notice, and decline your application.

The National Credit Regulator enforces this, and any creditor who lends to someone who’s under debt counselling will face harsh consequences. This is set in place to help prevent you from falling back into old, unhealthy patterns with debt.

What if you still need money?

If you’re considering a personal loan because you’re no longer able to meet your monthly expenses, you still have a few options available to you. Consider taking the following steps. 

  1. Speak with your debt counsellor: Their job is to help you manage your debt, and you need to reach out to them if your financial circumstances change. If you can no longer afford your current instalment, they can reopen negotiations with your creditors and potentially have it reduced.
  2. Increase your monthly income: This may not always be possible, but it’s always worth considering whether you can increase your income. Perhaps you can monetize one of your hobbies, or maybe you can earn additional commission at work.
  3. Reduce your monthly expenses: Go through your bank statements and make sure you’re aware of all of your monthly expenses. From there, you will be able to identify how you can reduce this so that you will have more money available each month.

Once you have completed these steps, you will be on a financial path that suits your new circumstances, while still protecting yourself from falling into more debt.

Ready to address your unmanageable debt? Consider debt consolidation.  

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