Too much debt equals too much stress, which can lead to bad decisions on how to manage it and a poor choice of debt counsellor! We’ve got the top tips to help you choose a reputable debt counsellor and avoid the scams and swindlers!
Debt counselling can help you clear your debts, not reduce or write them off
Debt counselling will help you gain control of your finances, and ease stress.
What debt counselling is
Debt counselling, also called debt review, is a legal process to help over-indebted consumers pay their debts while still affording their living expenses. Debt counsellors will review your debts and check if you qualify for debt counselling. If you do, they will draw up a payment plan (a schedule of when and how you pay your debts), which you and your creditors agree to. The payment plan ensures that your debt repayments are affordable. You can read more about debt counselling and who qualifies in this blog.
What debt counselling is not
Debt counselling does not reduce debts or write them off, or remove a debt review listing, which some unscrupulous operators claim to do for you. These are not reputable debt counsellors and they should be avoided as their aim is usually to take your money for themselves or use your personal details for ID fraud.
How to choose a reputable debt counsellor and avoid the scams and swindlers
Debt counselling is a regulated process, with rules and guidelines, all reputable debt counsellors follow. We checked the legislation, asked the National Credit Regulator and DebtBusters for their input, and came up with a quick checklist to help you choose a reputable debt counsellor.
Your debt counsellor must be registered with the National Credit Regulator
Ensure your debt counsellor is registered and has the right credentials, say DebtBusters. Ask for their NCRDC number (their registration number) and check it on the National Credit Regulator’s website. You can also contact the Regulator to check the registration. Make sure the number, name and details on the Regulator’s website match the details your debt counsellor gave you.
Your debt counsellor must explain and follow the correct process
Your debt counsellor should explain how debt counselling works and assess your financial affairs to determine if and how much you are indebted and if you qualify for debt counselling. Avoid any so-called debt counsellors who don’t take the time to do this step.
Top tip: If you receive unsolicited calls from debt counsellors ask where they got your information (hint: there is no national consumer database). Reputable debt counsellors will be able to tell you where they got your information.
You must understand debt counselling fees and make sure they are in line with legislation
In addition to explaining how the process works, your debt counsellor should also explain how the fees work. According to regulations, debt counsellors are allowed to charge certain fees, such as an application fee to assess your debts and budget, and a monthly fee for their services. Your debt counsellor must charge fees no higher than the maximum set out by legislation. You can read more about debt counselling fees in this article from DebtBusters.
Your debt counsellor must use a payment distribution agency to pay your creditors
When you enter debt review you pay one monthly payment that is then distributed to your creditors as per the payment plan, as well as any fees due to your debt counsellor. This one payment should be made to a Payment Distribution Agency unless you have an arrangement to pay your creditors directly. “According to the National Credit Act, the debt counsellor is not allowed to receive any payments directly or distribute it,” say DebtBusters.
Qhamani Loni, senior debt counselling monitoring officer says there are four Payment Distribution Agencies registered with the National Credit Regulator. These are:
- DC Partner
“These agencies will collect the consumers’ monthly repayments on behalf of the credit providers and distribute the repayments to the credit providers’,” Qhamani says. “The debt counsellor and consumer receive monthly statements indicating the payments that were made, as well as the outstanding balances on the consumer’s accounts.” It is a very big red flag if you are paying or asked to pay your debt counsellor directly!
You can contact the National Credit Regulator if you suspect a debt counsellor is not following the regulations.
Manage, don’t panic
Many South Africans have problems meeting debt repayments. Don’t rush into arrangements to manage and pay your debts without understanding the details, and always take the time to make sure your debt counsellor is registered, reputable and follows all the regulations and guidelines.