Still unsure about debt counselling?We explain everything in detail
1. What is debt counselling?
Debt counselling is a regulated process that was introduced by the National Credit Act in 2007 as a means to help over indebted consumers. The process involves a debt counsellor negotiating with creditors on your behalf in order to reduce instalments by means of extending the credit term. The debt counsellor may also appeal to have interest rate on credit agreements reduced.
2. What is the difference between debt consolidation and debt counselling?
A debt consolidation loan takes the form of a personal loan and offers consumers a way to reduce the amount of accounts they have. While debt consolidation allows the client to apply for more credit, it does not however offer the client any legal protection and clients may face repossession of assets or possible judgements if they are unable to make the monthly instalments, not to mention the higher interest rates.
When undergoing debt counselling, the consumer is placed under debt review for the entire term until the debt has been settled. Debt counsellors re-negotiate the monthly instalment amount due to creditors on your behalf. The agreed amount is paid via a payment distribution agency that ensures that creditors receive their amount due. Clients placed under debt review are required to pay a fee to the agency covering the cost of the service of debt counsellors who negotiates with creditors as well as the legal fees involved with getting the process done.
3. What does it mean to be over indebted?
Over-indebted as defined by the NCA means that you are unable to meet all your financial obligations in a timely manner. This is determined by a debt counsellor, and means that you are unable to repay your minimum monthly installments.
4. What happens to my assets under debt review?
Debt counselling offers you legal protection whereby creditors are prohibited from taking any legal action against you or your assets.
5. Can I undergo debt review if I am unemployed?
Debt review is only applicable to clients who are employed and earning a monthly income.
6. Will I still be able to obtain credit under debt review?
Debt review offers you protection from incurring further debt. Under debt review you will first have to clear existing debt and obtain a clearance certificate prior to being eligible for any further credit.
8. What do I do if I am married in community of property?
If you are married in community of property, you and your spouse will have to undertake a joint application for debt review.
9. What if I want to exit the debt review processes before all my debt has been settled?
The debt counsellor must notify the credit bureaus that you are exiting the debt review process. You will then be liable to make payments directly to the credit providers and you will no longer make use of the distribution agent system. Proof of payment must be sent to the debt counsellor for record keeping. You will still be responsible for any fees and after care services due to the debt counsellor. Once all fees and debts have been paid, the debt counsellor will issue you with a clearance certificate. Once you obtain a clearance certificate the debt counsellor will notify the credit bureau who are then legally required to remove the “under debt review” flag from your name. The negative payment profile history will also be removed from your name. Once the clearance certificate has been issued you can apply to the court to have your debt review order rescinded. This will also allow you to re-enter the credit market.
Alternatively you may request that your debt counsellor issue you with a clearance certificate prior to all debts being settled on the basis that you have demonstrated financial stability. Please note that this option is only available should your debt be considerably reduced and you are able to demonstrate that you are in a position to manage it. Should you withdraw from the process without obtaining a clearance certificate, your name will be flagged as withdrawing from the process prior to settling all debts. This may count against you as it shows that you are not committed to clearing your debt. The negative payment profile history will also not be removed from your name and remain in place for a period of 5 years.
10. What happens if I want to exit debt review and all my accounts have been settled?
Once all fees and debts have been paid, the debt counsellor will issue you with a clearance certificate. Once you obtain a clearance certificate the debt counsellor will notify the credit bureau who are then legally required to remove the “under debt review” flag from your name. The negative payment profile history will also be removed from your name. Once the clearance certificate has been issued you can apply to the court to have your debt review order rescinded. This will also allow you to re-enter the credit market.