Are you struggling to pay your debts every month? Debt counselling is a process that can restructure your debts and make the monthly repayments more affordable. We chatted to registered debt counsellor and administration director at Infinite Life, Ramona Singh, to find out how debt counselling can help you.
What is debt counselling?
Debt counselling, also known as debt review, is a legal process whereby your debts are restructured. A registered debt counsellor will negotiate with your creditors to reduce the instalments and interest rates charged on your accounts so that you are able to pay them off.
Are you eligible for debt counselling?
If you meet the following criteria, you can approach a debt counsellor to review your finances to find out if you qualify for debt counselling.
- You must be over-indebted to the extent that you cannot pay your debts on time each month
- You must be earning an income
- Your creditors cannot have taken legal action against you
Note: If you are married in community of property you and your spouse must apply jointly, because all your property, your assets and your debts, are jointly owned.
What will your debt counsellor do when you enter debt counselling?
Draw up a budget and payment plan
Your budget will determine how much you can afford to pay towards your debts each month. A payment plan shows how each debt should be paid off over time.
Ramona says your debt counsellor will draw up a budget and payment plan which leaves you enough money to pay your living expenses such as food, transport, and housing.
Notify and negotiate terms with your creditors
Your debt counsellor will negotiate terms, such as lower monthly instalments, which makes your debts more affordable.
Once your creditors have been notified, you have officially entered debt counselling and your creditors can no longer ask you for payment, harass you for payment or take your possessions to pay off your debts. Ramona says this also puts a stop to all additional charges, such as penalties or additional interest, being added on your overdue accounts.
Keep you updated
Each month your debt counsellor will send you a statement showing the balance of each debt and how much you have paid off.
What do you have to do?
You pay a monthly lump sum amount to a payment distribution agency, as per the payment plan. Payment distribution agencies take your payment and pay each of your creditors the amount due to them as well as a small fee to your debt counsellor for their services. This fee is regulated by the National Credit Regulator.
Debt counsellors are required to use payment distribution agencies to ensure your money is paid to your creditors as specified in your payment plan and there is no financial mismanagement. You can check if the payment distribution agency is registered with the National Credit Regulator here.
What happens next?
When your debts are paid off, you are issued with a clearance certificate and can once again apply for credit, such as credit cards and store accounts.
Note: You may still owe money on a home loan even if you have completed debt counselling and paid off all your other debts. Home loans form part of debt counselling because they need to be included in your monthly budget, but, because they are long-term, the debt counselling process can end when you have paid off your other debt, but still owe money on your home loan.
Is it really this easy?
Debt counselling is probably the best way to pay off your debts if you are over-indebted. It can help you get out of debt, and it takes away the stress of having to face, or avoid, your creditors demanding payment. However, be aware that:
- With the commitment to satisfy your debt obligations, you will need to make lifestyle changes, such as reducing your expenses
- Your debt might take you a little longer to pay off than you anticipated, because you are paying smaller, more affordable repayments
- You cannot take on any more credit, such as a store card, car finance or any personal loan, while you are in debt counselling
What will you need?
Ramona says the process of entering debt counselling is quick. To start the process, you will need:
- Your ID, and your spouse’s ID if you are married in community of property
- Proof of address
- A copy of your latest payslip or your bank account statements if you are self-employed
You can find registered debt counsellors on the National Credit Regulator’s website.
Don’t wait, seek help
It’s best to avoid taking on too much debt. Ramonas’s tips for managing your debt include keeping track of your finances and making debt repayments a priority. But if you do have too much debt and cannot repay it on time, don’t wait. Rather ask a professional for help and make a plan to repay your debt.
The Truth About Money is here for you
Don’t carry your debt burden alone. The Truth About Money and DebtBusters offer a range of debt management services free of charge to successful applicants, including telephonic debt counselling, debt consolidation and debt settlement. You can read more about these services and apply here.