What is Debt Counselling & Is It For Me?

Posted by Hippo on 28 July 2020

A woman consults with a debt counsellor to learn what it is about

Debt counselling was introduced as part of the National Credit Act back in 2007. The reason it exists is simple: to help people who are either in too much debt or soon-to-be over-indebted to repay their outstanding debt through one affordable repayment amount that is agreed with all creditors.

We could get into the technical definition of what over-indebtedness is, but a good rule of thumb to follow is this: if you're struggling to pay your debts on time or feeling stressed about your financial situation, chat to a debt counsellor.

Although anyone struggling with debt can apply for debt counselling, an assessment will be conducted to determine if you qualify for the financial solution, and if you're married in community of property, you'll need to apply with your spouse.

How does debt counselling work?

When you contact a registered debt counsellor, they will give you a free debt assessment. This determines how much debt you're in and whether debt counselling is a suitable option for you.

If the assessment determines you are over-indebted, then you can formally apply for debt counselling. Once you do, your debt counsellor will do most of the heavy lifting! It's their job to let all your creditors and the credit bureaus know that you have applied so they stop contacting you directly.

The debt counsellor also negotiates, on your behalf, with your creditors to try and reduce your monthly payments on all credit agreements that fall under the National Credit Act. This is done within agreed industry norms and based on what you can afford. It is not something most people can easily or efficiently do on their own, especially when there are several creditors involved.

Once more affordable repayment rates are negotiated, your 'rearranged debt' is approved by a court or National Consumer Tribunal to make sure the renegotiated rates are fixed for the duration of the debt counselling.

How do I choose a debt counsellor?

All credible debt counsellors are registered by the National Credit Regulator, and you can find their registration information on the National Credit Regulator (NCR) website. Make sure the debt counsellor you choose is in fact registered with the NCR.

It's always a good idea to ask your debt counsellor if they use the Debt Counselling Rule Set (DCRS) system, which is the industry golden standard, and benefits both the consumer and creditor.

How do the debt repayments work?

You'll make one affordable repayment each month. This is paid to an Independent Payment Distribution Agency (PDA), which is also overseen by the National Credit Regulator. They distribute the money, on your behalf, to all the creditors who are included in your debt counselling for the duration of the plan.

Debt counselling is highly regulated, which means all the relevant fees are built into the single payment amount. The NCR sets the fee guidelines.

How long does debt counselling take?

Debt counselling usually lasts between three to five years, depending on how much debt you need to repay. It's your debt counsellor's job to negotiate and determine what you can afford to pay each month.

Throughout the process, your debt counsellor's service staff are available to offer you advice or support, and communicate with your creditors.

How does debt counselling affect my credit?

Although you won't be able to apply for credit while under debt counselling, once you've completed the programme and received a clearance certificate, you'll be able to apply for credit.

But before you apply for credit again, it's a good idea to draw up a realistic budget and discuss this with your debt counsellor or a financial advisor.