Frequently asked questions

You may have heard a lot of people talking about debt counselling and Debt Counsellors. It seems to be a good thing but you may be wondering what exactly does debt counselling mean?

Getting Help from a Trained Debt Expert

If a South African consumer is having a hard time paying back their debts as well as covering all their monthly needs they are said to be “over indebted” or have too much debt. This means they qualify to get help from a Debt Counsellor.

Debt Counsellors are trained experts who specialize in dealing with debt who are registered with the National Credit Regulator (NCR). The name explains what they do. These experts counsel people about their debt.

One of the things these debt experts specialize in is helping consumers look at their monthly budget. Many consumers do not have a realistic, sustainable budget and are living month by month with no plan. A proper budget looks at total household income and regular monthly expenses as well as all a person’s debts.

What Does Debt Counselling Involve?

If a consumer approaches a Debt Counsellor for advice the Debt Counsellor will ask them for the following information:

- Proof of Income
- Monthly Bank Statements (to show spending)
- Proof of Address
- Marital Status
- A list of creditors and what is owed (or statements from each credit provider).
- Debt Counsellors will also ask the consumer if they can draw a credit Bureau report which has additional information about the consumer’s debts.

The Debt Counsellor will then discuss with the consumer how they got themselves into debt and what plans they have made to try to cope with their debt.

What is a frequently asked question?

Debt Counselling

The Debt Counsellor will then help the consumer look at ways to change their spending and saving. They will also discuss what options the consumer has to repay their debts in a manageable way.

If the Debt Counsellor feels that the consumer is over-indebted and could benefit from a formal debt review they will then ask the consumer if they would like to formally apply for debt relief (debt review).

If the consumer formally applies then the Debt Counsellor will then notify the National Credit Regulator (NCR) that the consumer has applied for help. The NCR will then notify the various credit bureaus that the person has started a debt review.

The Debt Counsellor will then officially ask each of the consumer’s credit providers for documentation about the consumer’s debts. The Debt Counsellor will then begin to make proposals to all the credit providers and to the consumer about how the debt can be settled more manageably.

The Debt Counsellor has then done the official ‘debt review’.

What Happens Next?

Next, the Debt Counsellor will take all that information and their proposal and submit it to a local Magistrates Court. The court may then turn that proposal (or something very similar) into a formal debt restructuring court order.

‘the Debt Counsellor will take all that information and their proposal and submit it to a local Magistrates Court’

Consumers who enter debt counselling find massive relief from stress as credit providers call off their collections agents. The court order rearranges the consumer’s monthly debt repayments to much more realistic smaller repayment amounts.

Because the monthly debt repayment amounts are smaller than before, it can take a bit longer to settle the debts. Many plans are arranged over 60 months (5 years) and credit providers commonly lower or drop the interest on the accounts to help consumers settle the debt within that time period.

Ongoing Help From Your Debt Counsellor

During the process, while repaying their debts, the consumers can get advice or assistance from their Debt Counsellor. This is very helpful if the consumer perhaps has a dispute with a credit provider over a balance or needs advice on how to deal with any financial crisis along the way.

‘During the process… the consumers can get advice or assistance from their Debt Counsellor’

At the end of the process, the Debt Counsellor also plays a big roll in helping the consumer get the credit bureaus to remove any reference to debt review from their reports. This helps the consumer get access to new credit once the debt counselling is finished.

Summary:

Debt Counselling is help and advice given to consumers by trained Debt Counsellors about dealing with their debt. Primarily, this is through a comprehensive debt review process. They assist consumers with better budgeting, creating debt restructuring proposals to court and ongoing debt advice as consumers in debt review pay off their debts over time. They also help consumers eventually get their credit bureau records cleared once the process is done.

How do you find a good Debt Counsellor?

Have you heard horror stories about Debt Counsellors who ran off with consumers money or who simply disappeared one day? If so, it is probably an urban legend. That said; when you buy anything you should shop around and when using a professional service it is always good to find a service provider who will meet your needs exactly. But how do you find the right Debt Counsellor? One you can trust and one you can rely on. This can be a bit of a concern. After all a Debt Counsellor can make or break your attempt to get your finances back under control.

What to look for:

When dealing with a Debt Counsellors office it is always good to ask to speak directly to the Debt Counsellor. You should be aware that many Debt Counsellors use agents to help with processing information and other administrative duties. This is normal but it is the Debt Counsellor who has to make the proposals and sign off on any deals made or submitted to court.

While dealing with a Debt Counsellor over the phone or via email is great as it enables you to have a measure of privacy in this sensitive matter it is always good to know where the Debt Counsellor’s offices are situated.

In the offices of each Debt Counsellor is a certificate from the National Credit Regulator (NCR) with their name on it saying they are a registered Debt Counsellor

Is Debt Counselling Free?

Debt Counsellors charge a professional fee at the very start of the debt counselling (or debt review) process and then a monthly retainer fee (called an aftercare fee). These fees form part of the monthly debt review payment and are not paid upfront before the process starts. There are no government regulated or published fees but the National Credit Regulator (NCR) has periodically published recommended rates that most practices use.

Do Debt Counsellors Work For Free?

Debt Counsellors are trained professionals who offer a ‘paid for’ professional service. Much like lawyers or doctors, they charge for their time and services. As specialists, who know how best to help consumers deal with debt, the (small) fees are well worth it for the level of assistance consumers receive.

How Much Will Debt Counselling Cost?

No Set Fees: At present, there is no set fee structure published in any government gazette or in the National Credit Act and Regulations.

Industry Norms: Over the years, debt counselling associations and the National Credit Regulator (NCR) have published guidelines that most Debt Counsellors stick to voluntarily.

There are traditionally two aspects to professional fees paid to the Debt Counsellor:

1. An Initial Restructuring Fee (once off)
2. A Monthly After Care Fee (monthly)

What Is The Initial Once Off Restructuring Fee?

When a consumer enters debt review with a Debt Counsellor they will be helped to adjust their monthly budget to free up as much money as is reasonable and sustainable to pay towards their debt each month.

The initial Restructuring Fee covers:

1. The efforts of the Debt Counsellor in gathering information;
2. Helping the consumer adjust their budget;
3. Contacting all credit providers to notify them that the consumer has entered debt review and is receiving debt counselling;
4. Gathering information from all credit providers
5. Considering Reckless lending if asked;
6. Making proposals to credit providers and the consumer on how the debt could best be settled;
7. Beginning parts of the legal process (which happens with the help of attorneys via court).

The initial fee is made up of some smaller subdivisions namely: the Application Fee, Administration Fee, Determination Fee, Restructuring Fee and possibly the Reckless Lending fee.

Once the Debt Counsellor knows how much the consumer can realistically pay toward their debts each month they will organise for the consumer to begin paying that amount (normally via a Payment Distribution Agent).

FIND OUT MORE ABOUT PDAs HERE: What is a PDA?

Out of the first adjusted payment that the consumer makes at the end of their first month of debt counselling, a portion of the payment will be set aside for the Debt Counsellor. If the amount is smaller than the industry ‘norm’ then all those funds may be allocated to the Debt Counsellor. If the amount paid is more than this figure then, the Debt Counsellor gets their payment and the balance of the payment is paid over to the credit providers.

What Are The Monthly Fees?

Debt Counsellors are paid a type of small monthly retainer fee called an After Care Fee. This fee also comes out of the consumers monthly debt repayment and the credit providers factor it into their calculations as well.

The monthly After Care Fees cover things such as:

1. Ongoing assistance and advice;
2. Assisting with payment queries;
3. Reviewing the consumer’s ability to pay the agreed amount from time to time;
4. Assisting at the end of the process with a clearance certificate

Debt Counselling Is Not Free But It Is Worth It!

Stress Relief: For most people entering the process, there will be a huge relief as credit providers stop pressuring them for payments they cannot realistically afford.

Advice: They will also benefit from advice from their Debt Counsellor on how to better spend the money they do have each month.

Savings: Since most credit providers drop monthly fees and charges on the consumer’s debts and in most cases drastically reduce interest rates on the debt it is common for consumers to actually save a massive amount of money over time that would otherwise go towards those costs. The credit providers really try to help them get out of debt as fast as possible.

‘This means that the small fees that are allocated to the professional services of their Debt Counsellor quickly fade into insignificance by comparison’

This means that the small fees that are allocated to the professional services of their Debt Counsellor quickly fade into insignificance by comparison.

For example, if the consumer has 7 accounts that used to have monthly account fees of +-R60 each (R420) that now, in debt review, no longer charge those fees, they will be very happy to pay their Debt Counsellor a small monthly amount (eg. R125 each month) in After Care Fees.

Each Person’s Fees Differ Based On Their Situation

None of the fees you pay are paid upfront before work has been done. The fees form part of what the Debt Counsellor proposes can realistically and consistently be paid toward all the consumer’s debt each month. Credit providers are aware of the professional fees and work it into their own calculations.

FIND OUT MORE HERE: How to find a Good Debt Counsellor

Unique: Remember that you are not average. You are special and unique. If you talk to a Debt Counsellor about maybe starting the process they can normally give you a rough idea of the fees you will probably pay, based on your figures, pretty quickly. Please note that the final figure, while similar, might be slightly different depending on what you end up paying towards your debt each month and what the court orders.

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