Understand the costs of debt in the first three months.
Many people who are unfamiliar with the debt management process fail to understand how they can improve their financial position when they have to pay debt management fees to a debt counsellor or debt management company in addition to repaying their debts.
Provided you have partnered with a reputable agency, debt management, is a well-designed programme created within a regulatory framework, which has the goal of providing fair financial compensation to all parties involved.
Hans Overbeek, founder and CEO of the management company Cyber Finance, says, unfortunately, many people who opt for debt management, abandon the process once they realise there are costs involved.
“The first three months are crucial in helping over-indebted individuals start their debt reduction journey, however, they need to be aware that very little, if any, of their first three months’ contribution goes towards reducing their debt.”
Overbeek explains that that transparency about the costs involved in the debt management process is essential to empowering an over-indebted individual to make the best financial decisions regarding their debt.
The Debt Counselling process, also known as Debt Restructuring or Debt Review is regulated by the National Credit Regulator which also provides guidelines regarding the costs involves in the process.
There are no “upfront” costs with debt counselling if you work with a reputable debt counsellor. They are not allowed to charge for any fees that are not built into the restructuring fee. All admin fees must be outlined in the restructured payment that the client pays. Those looking to get out of debt must be aware that a debt counsellor may not charge you outside of the restructured payment. If a debt counsellor requests upfront payments that are not going through the PDA they must inform the NCR of this and that debt counsellor will be investigated for not following the National Credit Act rules set out for Debt Counsellors.
The cost that you can expect to pay within the first three months are as follows. These costs are due once you have signed the NCR form 16, also known as the application for Debt Review.
Frequently consumers, who enter debt management, are genuinely concerned upon receiving statements from the debt counsellor or Payment Distribution Agency (PDA) and note that the statement differs from the statements they have received from their creditors.
But, says Overbeek, “there is no need for alarm. The reason for the discrepancy is that the PDA and debt counsellors do not always receive updated statements from creditors. This leaves the counsellor or PDA to work on the initial amounts provided in the application form 16 for the debt review.
It’s not uncommon for the debt amount owed by the consumer to increase within the first three months of entering debt counselling until the account balances from creditors are adjusted to reflect the new repayment plan accepted by your creditors and the review process gains momentum. Your debt counsellor has accounted for this in the repayment amount and was calculated based on the cost of debt counselling and the new terms agreed upon by your creditors.
Individuals need to understand that, apart from the interest applicable to an extended debt term and the costs of the debt management process, they will not pay more than they originally owed.
The reason for increased balances on creditor statements can be due to various factors. This is often due to the fact that creditors statements are not reflecting the newly renegotiated interest rate or that the balance owed on the repayment plan is not up to date.
If you have concerns, you should talk to your appointed debt counsellor to explain your creditor statement to you. This will help you understand the discrepancies and address any concerns you may have.
At all costs, do not stop paying the restructured monthly payment that you are asked to pay as this can have serious implication for the debt management process. If there is indeed an error on your statement, your debt counsellor will call your creditors and resolve any issue on your behalf.
Getting into debt is easy but getting out of debt can be a hard and complicated process, which is why it is imperative that people understand the debt review process and the cost included,” concludes Overbeek.
If you need help reducing your debt and still do not fully understand the debt management process or costs involved speak to one of our NRC-registered debt counsellors by filling out the debt assessment form on the right or contacting us by visiting our contact us page.