Do you need a debt counsellor?
Fin24

Do you need a debt counsellor?

2008-06-18 14:56

Fin24.com's Money Clinic has invited users to share their financial headaches.

Jasen writes: What are your thoughts on the services of a debt counsellor?

Money Clinic: The National Credit Regulator started registering debt counsellors in 2007. The counsellors have to be trained according to NCR standards and also have to comply with other requirements, like having grade twelve and at least two years' experience in a relevant field, e.g. in the financial sector or law.

If you can't afford debt repayments, you can contact a counsellor who will go through your affairs and decide whether you are over indebted. This means that your expenses (living and debt servicing) are higher than your income. He or she will then work out a repayment plan - proposing smaller instalments over a longer period or postponing repayments - which will be submitted to your creditors. If they don't agree to the plan, the counsellor can go to the Magistrate's Court and force them to accept it.

The counsellor will also investigate whether a creditor did the necessary checks to ascertain that you earn enough money to repay the debt. If not, they could be charged with reckless lending and your debt might even be scrapped.

The pros and cons of debt counselling:

Pros:

1. Your repayments will be restructured. A counsellor will set aside a certain amount of income for your necessities(food, clothing, transport costs etc) and you then use whatever money you have left to service your debt. You never pay more money than you can reasonably afford, says Luke Hirst of Debtbusters.co.za.

2. A registered debt counsellor is far more likely to get a response from your creditors when it comes to negotiating your repayments, he adds. "If you have gone under debt review, you are showing your creditors that your are committed to paying back the money you owe - even if it takes a little longer."

3. By going under debt review, your creditors cannot start any legal proceedings for 60 days - during this time the client is expected to continue paying the creditors what they can reasonably afford, whilst the debt counsellor is arranging the new debt plan.

4. Once under debt review, you only make one monthly payment - to a payment distribution agency - who in turn pays all your creditors. One easy payment will make your finances much more manageable, says Hirst.

5. If you go the debt-counselling route - rather than apply for sequestration - you are far more likely to get credit later on in life. With debt counselling, once your debts have been repaid the negative information on your credit record is taken off your name, you are free to go out and get more credit if you wish, says Hirst. "It will take years to get your name cleared if your finances were sequestrated."

Cons:

1. It costs money. You will need to pay the counsellor R50 as an administration fee initially. According to NCR guidelines, the counsellor can then also get a fee equal to the first instalment of your new debt repayment plan (up to R3 000) and thereafter a monthly management fee of 5% (up to R300) of your monthly repayment.

2. While under debt review you are not allowed to obtain any additional credit or incur any further credit on your existing accounts. Failure to do so will result in the cancellation of the debt review, warns Hirst.

3. You will need to cut down on your living costs and start living on a budget. For example, reducing your food bill by buying in bulk or at the cheaper stores, shopping around for cheaper insurance and trying to reduce your transport costs.

A good debt counsellor should be able to advise you on ways to cut costs, says Hirst.

"If you could be paying less for services like insurance, a debt counsellor should be able to pick this up and advise you in that regard."

How to get a debt counsellor on your side:

Only a few hundred counsellors have been accredited and many consumers have complained that they can't get hold of a counsellor.

Contact the NCR (info@ncr.org.za or 0860 627 627) for names of an accredited counsellor. You are not restricted to someone in your area - if you have email and access to a fax machine, you can find a registered counsellor online. But make sure that the person has the right credentials and is registered with the NCR.

Do you have a personal finance query? Contact Money Clinic at moneyclinic@fin24.com.

- Fin24.com