Debt Counselling – what it is and the process

What is Debt Counselling?

Debt counselling is the process where a person who can no longer afford to make monthly debt repayments apply with a debt counsellor to negotiate with creditors for reduced monthly repayments. Debt counselling became available from the 1st of June in 2007 to consumers who are unable to make repayments. Debt counselling was made available so that there is a standard, consistent process to help a consumer with unmanageable debt and focuses on the ultimate agreement of all involved. Debt counselling helps the consumer to make manageable repayments to the creditors and the credits benefit from saving money on expensive legal action.

The Process:

The debt counselling process is made easy and understandable by the National Credit Regulator so that each person can apply for debt counselling and understand the application.

The first step would be to contact a debt counselling company and get a debt counsellor to assist and represent you. The debt counsellor will first asses your financial position so that they can determine if you are over-indebted according to the information provided. Over-indebted means that after all basic living expenses have been paid a person does not have enough money left to play monthly payments according to all credit agreements.

The debt counsellor is then responsible for informs the creditors with a legal notice that you have applied for debt counselling. Thus the creditors are not allowed to take any legal action against you. Over the next 60 working days the debt counsellor and the creditors must negotiate a new repayment plan that is manageable.

The debt counsellor must also notify the creditors with a legal notice if you seem to be over-indebted. The debt counselling will end in court in order to get a consent order for the new repayment agreements. This is only to ensure that the creditors abide by the new repayment agreements and that they may not take legal action. It also gives the creditors reassurance that you will keep to the new arrangements and my each monthly payment.

The court date must be set by the debt counsellor in the first 60 working days of the application. The debt counselling application will be finalised after the court case. Once debt counselling is finalised you will no longer pay the creditors directly but payment will be made to the Payment Distribution Agency (PDA). The debt counsellor can charge fees which is approved by the National Credit Regulation and these fees can be deducted from the monthly payments.