10 Commandments Of Debt Counselling

Let’s face it. It is so easy to get trapped in a downhill slide of credit cards, personal loans, and clothing accounts.

Sometimes people borrow more money than they can afford to repay and then they quickly find themselves in serious financial trouble.

What is Debt Counselling

Debt counselling is a broad term used to describe the assistance that is given to consumers to gain control over their debt, and it involves a range of options of which debt review is only one.

A Debt Counsellor may recommend possible options or provide the best possible solution to remedy a consumer’s current or pending debt situation.

Understand that there is a difference between debt counselling and debt review.

Cyber Finance is a debt counselling company that helps over-indebted South Africans to restructure their debt and manage their cash flow issues. This is done through a number of short- and long-term options. Apart from debt review, Cyber Finance also offers services such as loan consolidation, sequestration and administration.

Debt counselling is a consideration for over-indebted consumers and here’s what you need to know.

The 10 commandments of debt counselling are:

1. Debt Counselling requires a court order

Debt counselling is a voluntary process.

The process of debt counselling is regulated by the National Credit Regulator (NCR), and it is important to ensure that the debt counsellor you choose to work with is registered with the NCR.

You choose to allow a debt counsellor to conduct a complete financial affordability assessment as per Regulation 24(10) and the task team rules and guidelines of the NCR.

Only a debt counsellor may conduct this assessment, Cyber Finance has a team of registered and professional debt counsellors that are able to assist you.

A debt counsellor will determine the possibility that you are overindebted, or likely to become overindebted in the near future.

Should you as the consumer agree to the outcome of the assessment, then your debt counsellor may recommend that you consider formal debt review as a solution to remedy your financial situation.

The legal process that will follow in terms of restructuring your debt is then known as “debt review”, as per Section 86 of the National Credit Act.

2. Debt Review protects you from legal action from creditors

It is important to know that from the onset of your debt review application your creditors may not take legal action against you,

During the debt review process, your debt counsellor will submit a restructured payment proposal plan to all your creditors, in most cases your credit providers will accept the new restructured payment plan provided it has been done according to the DCRS “Debt Counselling Rules System”.

Thereafter…

All your creditors, under the new payment plan, will issue your debt counsellor with “final acceptance letters” these letters will reflect the newly agreed lowered instalment, lowered interest rate, and new term.

Your debt counsellor will submit these final acceptance letters to the NCT (National Consumer Tribunal) to obtain a “Consent Order” or a Magistrates Court to obtain a “Granted Court Order”.

It is important to note that a court will assess the evidence based on the debt counsellor’s proposed final repayment plan for you. The court will take your individual situation and financial needs into account before making a ruling.

If a court finds that you are genuinely unable to meet your financial obligations, it will rule that you are over-indebted. 

While under debt review you are given a chance to repay your creditors on reduced payment terms to tackle your debt. Your debt counsellor negotiates a repayment plan with each of your current creditors and once agreed to, your creditors are obliged to stick to the new reduced payment plan.

3. No permanent record of debt counselling

After you have settled all your restructured debt, your debt counsellor will issue you with a clearance certificate. Your debt counsellor will also instruct all credit bureaus to remove the debt restructuring flag from your name.

Your debt review clearance certificate signifies that you are now debt-free.

When you apply for credit in future, there will be no flags or default listings on your name, nor will there be any information about the fact that you were under debt review.

Your credit record will be clear, and you will be able to take on credit again. But you should take care not to take on more credit than you can afford.

4. Pay one affordable monthly payment while under debt review

When you opt in to the debt review process, your debt counsellor will do an affordability assessment to see how much you can afford to pay monthly. This is based on your income, living expenses and other considerations, but you will never pay more than you can afford.

All your debt is consolidated and restructured into one monthly repayment. Your monthly payment is paid to a registered Payment Distribution Agent (PDA) (not directly to your debt counsellor) which then distributes it among all your creditors.

A PDA (Payment Distribution Agency) is an organisation that is mandated by the NCR process, manage, and distribute your single monthly payment to all your creditors.

5. Your monthly living costs are considered

Do not worry that you will not have a roof over your head or food to eat each month and that all your income will have to go towards paying off your debts.

When you apply for debt counselling (including debt review) your basic living costs are provided for first and then an amount is established to go towards your debt repayments.

Your basic living needs will include food, transport costs, rent, school fees as well as all your insurance and assurance policies are calculated into your budget. You will always have money to pay for these essentials if you stick to your restructured budget.

Over and above sticking to your household budget, your single monthly debt repayment falls within your budget. This is why debt counselling is such an effective solution for people with excessive debt.

6. You won’t pay more money than you can reasonably afford.

Be careful of debt counsellors who tell you can pay a very low monthly debt repayment amount. A responsible debt counsellor will set your debt repayment to the maximum you can afford to pay so that you can settle your debt as quickly as possible.

A very low single debt repayment amount may not be enough to please all your creditors which would, in turn, mean that your debt will not be restructured by a court and your debt could end up costing you more than you were initially promised.

Make sure you understand your affordability and that you are not misled by empty promises from less-than-scrupulous debt counsellors.

7. An NCR-registered debt counsellor will help manage your finances

Cyber Finance is dedicated to helping you tackle your debt and manage your finances. One of our registered debt counsellors will negotiate with your creditors and manage your debt repayment plan effectively.

You will receive a monthly statement via email or SMS that will show your new payments being made to your creditors as well as the new balances.

You don’t have to worry about your debts while under debt review. If a creditor contacts you, you simply direct them to speak to us, your debt counsellor.

8. Limitation on new credit while enrolled in a debt counselling programme

If you opt for debt review as the solution, you are not able to access new credit and a flag is placed on your credit record to indicate the fact to credit providers.

As soon as you have completed your debt review process and you are no longer over-indebted, you will be able to take out credit such as house, car, and personal loans once again.

There are other services such as voluntary debt restructuring (VDR) that allows you to access some credit facilities. It can also exclude your partner if you are married in a community of property and allow your spouse to access credit.

9. Debt review or debt counselling costs are regulated

There is a cost associated with debt counselling.

Should you decide to go under debt review, then these costs and fees for the services of a debt counsellor is regulated by the NCR.

It is important to know what these costs are, your debt counsellor should explain this to you.

As per the NCR, your debt counsellors fee is paid in the first month of your debt review application.

In the second month, fees are paid towards legal costs to obtain a granted court order, for your newly restructure debt.

It is of utmost importance not to miss any payments once your debt review process has commenced.

10. Your debts may take longer to repay off

In most cases, you will repay your debts within the time frame that the credit was extended to you initially.

But, if you wait too long to reach out for help and your debt situation has reached a drastic point, it can take longer to settle your debts, or you might end up losing your assets and face pending legal action.

That is why it is vital to not wait too long to ask for help.

Bear in mind that there comes a point where nothing will help you out of your debt. Finding a solution while it is possible is the best action you can take.

Debt counselling services were created to help take stock of and improve your financial health.

Debt review is an option that can work for you and when correctly done your debt repayments can be restructured so that all your debt is settled within a maximum period of 60 months or a reasonable time frame.

Conclusion

There are many factors to consider when choosing debt counselling but taking control of debt is a must.

 If you are over-indebted or feeling overwhelmed by your debt or, even if you just want some pointers in the right direction, Cyber Finance can assist you!

“In this difficult time, every South African has to face up to their debt and to ask for help before it is too late,” urges Alain Le Roux, Corporate Financial Counsellor at Cyber Finance.

Get a free debt assessment today from one of our financial counsellors’ who will help find the right solution for you.