There are few things in this world more stressful than owing someone money. Debt has swiftly become a global conversation, with almost every country owing money to another. Closer to home, South Africa is dealing with its own debt issues. Debt counselling, introduced in 2007, has been used as an alternative to administration and sequestration for hundreds of thousands of people to settle their outstanding debts with creditors.
What is Debt Counselling?
According to Debt Counselling SA it is where trained individuals contact and deal with your creditors to come up with an agreement that not only helps pay off your debts in a set time period but also allows you to continue to live relatively comfortably.
In order to qualify for Debt Review, the process of being assessed, you need to fall under the term “Over-Indebted”. This is calculated by examining you monthly expenses and seeing whether you have less money left after they have been deducted than your total debt repayments.
Why Do Debt Counselling?
The alternatives to debt counselling have some uncomfortable repercussions, such as the loss of assets or high administration charges. Debt counselling was designed to help and empower the consumer, offering a manageable way out of a difficult situation. By going this route you are removed from direct contact with your creditors, allowing the consumer to hold on their assets and be rehabilitated in a safer environment.
The other perk of debt counselling is that once the process is finished there are no negative marks on your credit record. When going down the sequestration route, the effects are visible on your credit record for the next 10 years. Debt counselling shows “enquiries” but these are not regarded as negative and won’t affect your score in any way.
Too Good To Be True?
Debt counselling sounds like the perfect way to deal with debt, but there are a few drawbacks. The first one is that during the process you cannot obtain any form of credit. At all. This means you won’t be able to have a credit card, get a personal loan or a bond until your rehabilitation is complete.
Once the debt counsellor has reviewed all your current payments and evaluated them he will settle on a single amount you pay each month. This immediately makes your life simpler and your finances easier to control. You should know that doing this will lower your monthly payments and make life easier but also extend the life time of your debt. This means, with the effects of compound interest, you end up paying back more than you would if you had continued with the original payments.
The whole process can take years to complete so making the decision to undergo debt counselling should not be taken lightly. There are also several costs involved in the process. The debt counsellor will most likely charge you a fee to apply, one if you are rejected, a fee for structuring your debt and a monthly fee of their choosing to cover expenses. You might also be liable for any legal fees incurred during the process.
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