Debt Counselling: The Pros and Cons
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 If you can no longer afford your debt repayments, you can contact a debt counsellor who has been trained in accordance with the 2007 guidelines and standards of the National Credit Regulator (NCR). According to the law, it is required that consumers who find themselves unable to meet their debt obligations be referred for debt counselling before any legal action can be instituted against them for the non-payment of debt.
Since 1 June 2007, debt counselling services are available to consumers who are unable to honour in a timely manner, all credit agreements to which they are party.
The debt counsellor 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 installments over a longer period or the postponing of 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.
A debt counsellor’s instructions are to conduct independent enquiries into a consumer’s financial situation and from there make recommendations to the court in respect of the restructuring of the debt and the suspension of any reckless credit agreements.
The Pros and Cons of Debt Counselling
Pros
- By applying for debt counselling and review you will be showing your creditors that you are serious about your predicament, and they will work with you and the counsellor to reach an amicable agreement
- Repayments will be restructured for the servicing of outstanding debts. This will be done after a certain amount of your income has been set aside for essentials, such as food, clothing, transport, etc.
- Once you are under ‘debt review’ your creditors cannot institute legal proceedings against you for the repayment of debt. You will only make one monthly payment which will be handled by a debt distribution agency who will handle all payments to your creditors.
- If you decide to go the debt-counselling route, rather than filing for bankruptcy, you are more likely to be granted credit in future, as once all of your debts have been repaid your credit record is ‘wiped clean’.
Cons
- While you are under debt review you are forbidden from applying for or obtaining any new credit or an extension on existing credit. Doing so will lead to the cancellation of your debt review.
- You will need to reduce you basic living expenses substantially (such as reducing transport costs, food costs, etc.) so that you can make repayments on your reviewed debt.
- There will be fees involved. The amounts that you can be charged are set out in the NCR guidelines.
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