Debt Counselling or debt review is a regulated process whereby a debt counsellor helps over-indebted consumers by developing an affordable repayment plan. The debt counsellor will then negotiate a restructured payment plan and obtain a court order confirming the new repayment plan. The debt counsellor deals with the customer’s creditors on their behalf in order to have the credit agreement extended and the instalments reduced.
A debt counsellor is a person that is qualified by and registered with the National Credit Regulator. A debt counsellor helps consumers that are in debt by developing an affordable repayment plan. A debt counsellor deals with the consumer’s creditors on their behalf and negotiates with the creditors in order to have the credit agreement extended and the instalments reduced. Consumers can then cover their monthly expenses (food, school fees, transport costs, etc.) while also paying their creditors an agreed upon amount every month.
Debt Counselling is part of the National Credit Act and was created with the intention of assisting over-indebted consumers to repay their debt by extending the original credit agreement and reducing the monthly instalments, to ensure that they can afford their reasonable living expenses and avoid legal action. Credit providers have to enter into negotiations with a debt counsellor in order to find a reasonable repayment proposal for consumers that are under Debt Counselling.
This will depend on your unique financial situation. The fees charged by debt counsellors are regulated by the National Credit Regulator. The fees will be explained to you once you apply for Debt Counselling and will be included in your debt repayment plan.
Firstly, a debt counsellor will look into your financial circumstances. If the debt counsellor finds that you are not over-indebted, the debt counsellor can help you work out a better monthly budget to enable you to repay your debts effectively.
If the debt counsellor, however, finds that you are over-indebted, you can apply to be placed under debt review. The debt counsellor will then develop an affordable repayment plan tailored to your unique financial circumstances and make recommendations to the courts and your credit providers concerning restructuring your debt. Once the repayment plan has been put in place, you’ll have to pay the agreed upon amount to a payment distribution agency (PDA) every month. The PDA will then pay your creditors. This makes it easier for you as you’ll only pay one amount to the PDA instead of paying smaller amounts to each of your creditors. Once all your debts have been settled, a clearance certificate will be issued. The clearance certificate will state that all your debts have been settled as per the debt repayment plan.
The National Credit Act requires that all debt review cases must either go to the magistrate's court or the National Consumer Tribunal (NCT). In order for the debt repayment plan to be put in place, a court order has to be granted. This, however, does not necessarily mean that you would have to appear in court. Certain courts require the debt review client to be present in court while others will allow the debt counsellor to act as the client’s representative in court.
If you are placed under debt review, it will be indicated next to your name at the credit bureaus. But, once all your debts have been settled, a clearance certificate will be issued and there will be no indication at the credit bureaus that you have been under debt review. You can then enter into credit agreements again.
Reckless credit refers to when a creditor approves a consumer’s request for credit even though the creditor knows that the consumer cannot repay the debt. Reckless credit will put the consumer in an over-indebted position. Credit providers are required to conduct an extensive financial assessment before entering into a credit agreement with a consumer.
This will depend on your unique financial situation. Your debt counsellor might negotiate with your credit providers to extend your repayment periods in order to lower your monthly instalments. This means that it might take a bit longer for you to repay your debts than originally stipulated in the credit agreement. Your repayment plan will indicate when your last day of payment will be so you will know upfront when your debts will be repaid. This is, however, dependent on whether you stick to the payments as specified in the repayment plan.
If you have a history of not honouring your debt repayments, you could be blacklisted. This will reduce your chances of taking our any new credit, e.g. a Personal Loan, home loan, credit card, etc. in the future. Credit providers are legally obliged to check your credit history before granting credit. If you have an unfavourable credit history, you may be seen by the credit provider as being high risk. Your application for credit may be denied or, if granted, may be subject to higher interest rates or stricter repayment terms.
No, while you are under debt review the law prohibits credit bureaus from blacklisting you. If you were blacklisted before applying for debt counselling, the negative listing will still appear on your credit record.
While you are under debt review, you will not be allowed to take out any new credit, e.g. a Personal Loan, home loan, credit card, etc. This is done to ensure that you don’t incur further debts, as the purpose of debt review is to reduce your current debt burden and to protect credit providers from being accused of reckless lending, if they are aware that you are over-indebted.
Whilst under debt review, it is important to stick to the repayment plan set out by the debt counsellor. If you skip a payment, your creditors have the right to cancel your debt counselling agreement and take legal action against you.
This will depend on your unique financial situation. In most cases, debt counsellors make provision in your debt repayment plan for all your insurance policies. Keep in mind that if you have Vehicle Finance, you will be required to have Car Insurance.
Debt review, administration and sequestration are three different debt solutions. Debt Counselling (or a debt review) is a debt management solution as it provides over-indebted consumers with a debt repayment plan. A debt counsellor deals with the customer’s creditors on their behalf in order to have their credit agreements extended and their instalments reduced. The debt repayments are consolidated into one affordable monthly repayment.
Administration is a debt solution whereby the consumer’s current debt instalments are reduced and they only pay their creditors once every three months. The debt repayment terms are often extended indefinitely, which means that the process is lengthy. There are also limitations as to the total amount of debt that is subject to a debt administration order.
Sequestration is where a consumer sells some (or all) of their current assets in order to pay off or lessen their current debt. The court will also appoint someone to manage the customer’s debt, which means that sequestration can be a lengthy and expensive process.
No. You cannot apply for debt counselling if you are unemployed. If, however, you are married in community of property and your partner is permanently employed you will be able to apply for Debt Counselling as a joint application.
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Hippo Comparative Services (Pty) Ltd is an authorised financial service provider. FSP number: 16357. 1 Telesure Lane, Riverglen, Dainfern, 2191.