Top 50 Frequently Asked Questions about a Debt Counsellor

The National Debt Review Center has published an article titled “Top 50 Frequently Asked Questions about a Debt Counsellor – Answered”. This article provides answers to the most common questions about debt counsellors. It is designed to help individuals who are considering the services of a debt counsellor or those who want to understand the role of a debt counsellor better. The information in this article is clear and direct, making it a useful resource for anyone dealing with debt-related issues.

By The National Debt Review Center Last Modified October 7, 2024

What is a debt counsellor?

• A debt counsellor is a professional who helps individuals or households manage their debt by negotiating with creditors, creating a debt repayment plan, and providing financial guidance.

How do I find a debt counsellor?

• You can find a debt counsellor by searching online, asking for referrals from friends or family members, or checking with the National Credit Regulator (NCR) for a list of registered debt counsellors.

What are the qualifications of a debt counsellor?

What are the responsibilities of a debt counsellor?

• Debt counsellors are responsible for assessing clients’ financial situations, creating debt repayment plans, negotiating with creditors, and providing financial guidance to help clients manage their debt.

How do debt counsellors help consumers manage their debt?

• Debt counsellors help consumers manage their debt by creating a debt repayment plan, negotiating with creditors, and providing financial guidance to help clients make informed financial decisions.

What are the benefits of working with a debt counsellor?

• The benefits of working with a debt counsellor include reduced debt, lower interest rates, and a more manageable debt repayment plan.

How do debt counsellors negotiate with creditors?

• Debt counsellors negotiate with creditors to reduce interest rates, waive fees, and create a debt repayment plan that is affordable for the client.

What are the costs involved in debt counselling?

• The costs involved in debt counselling include the debt counsellor’s fees, which are typically a percentage of the debt being repaid. These fees are usually included on your new debt repayment.

Can I choose my own debt counsellor?

• Yes, you can choose your own debt counsellor, but it’s essential to research and check their qualifications and reputation before making a decision.

How do I know if I need a debt counsellor?

• You may need a debt counsellor if you’re struggling to make debt payments, are overwhelmed by debt, or are facing legal action from creditors.

What are the signs of needing debt counselling?

• Signs of needing debt counselling include missing debt payments, receiving legal notices from creditors, or feeling overwhelmed by debt.

How long does the debt counselling process typically take?

• The debt counselling process typically takes several months to a year or more, depending on the complexity of the debt and the client’s financial situation.

What are the rights of consumers in debt counselling?

• Consumers have the right to a fair and reasonable debt repayment plan, to be treated fairly by creditors, and to receive regular updates on their debt repayment progress.

Can I withdraw from debt counselling once I have signed up?

Will my fees be refundable if I withdraw from debt counselling?

• Fees paid to a debt counsellor are typically non-refundable if the debt counsellor has already done the work, but it’s essential to check the debt counsellor’s terms and conditions before signing up as well as request proof of work done. See latest fee guideline for debt counsellors

Can I change debt counsellors during the process?

How do debt counsellors handle payment distributions to credit providers?

• Debt counsellors do not distribute on behalf of clients. There are registered payment distribution agencies (PDA’s) who are mandated for this task and that assist with the distribution of funds to your credit providers. Debt counsellors handle payment distributions instructions to registered PDA’s by creating payment plans that are affordable for the client and ensures that creditors receive their payments on time.

What are the implications for me if I decide to go under debt counselling?

• The implications of going under debt counselling include reduced debt, lower interest rates, and a more manageable debt repayment plan. “Read – Debt Review Consequences“

How do debt counsellors help alleviate financial strain?

• Debt counsellors help alleviate financial strain by creating a debt repayment plan that is affordable for the client and providing financial guidance to help clients make informed financial decisions.

What are the skills and information debt counselling provides?

• Debt counselling provides clients with the skills and information needed to manage their debt, create a budget, and make informed financial decisions.

How do debt counsellors help consumers avoid further accumulation of debts?

• Debt counsellors help consumers avoid further accumulation of debts by creating a debt repayment plan that is affordable for the client and providing financial guidance to help clients make informed financial decisions.

What are the benefits of debt counselling for consumers?

How do debt counsellors negotiate new debt restructure plans?

• Debt counsellors negotiate new debt restructure plans by working with creditors to reduce interest rates, waive fees, and create a debt repayment plan that is affordable for the client.

How do debt counsellors handle interest rates with credit providers?

• Debt counsellors play a crucial role in negotiating interest rates with credit providers. They negotiate with creditors on behalf of the over-indebted person to lower monthly payments and interest rates. This process involves the debt counsellor assessing the client’s financial situation and implementing a restructured debt repayment plan. The debt counsellor readjusts the client’s financial plan and budget, considering the new interest rates and payments. As a result, the client will be able to make monthly repayments that they can actually afford.
• Moreover, it’s beneficial if the debt counsellor uses the Debt Counselling Rule Set (DCRS) system, which is the industry gold standard. It benefits consumers and creditors alike by significantly lowering interest rates and reducing the time it takes to complete the process.

What are the legal fees involved in debt counselling?

How do debt counsellors handle legal actions from creditors?

Under normal circumstances, once you’re officially in debt review with a court-approved debt rearrangement order, creditors are restricted from taking legal action against you. This includes:

• Issuing summons or judgments
• Repossessing assets (like your car)
• Initiating any further legal proceedings to collect the debt

This protection exists because the debt review process establishes a new, manageable repayment plan based on your financial situation. Creditors are legally bound to respect this court order.

However, it’s important to remember these exceptions:

• If you miss payments or otherwise violate the terms of the debt rearrangement order without a valid reason, creditors can resume legal action.
• If your application for debt review gets rejected by the debt counsellor or the court, the legal protections won’t apply, and creditors can pursue legal avenues.

Debt Counsellor’s Role During Legal Issues

While debt counsellors aren’t lawyers, they can still help during debt review if legal issues arise:

• They act as your intermediary, communicating with creditors on your behalf. They explain your situation, the debt review process, and the court order.
• They advise you on your rights and responsibilities under debt review.
• They help you comprehend any legal documents you receive from creditors related to the debt.
• In some cases, they might attempt to mediate with creditors to resolve disputes regarding the debt or repayment plan.

What are the legal protections provided by debt counselling?

• Debt counselling provides legal protections for consumers, including a stay of legal action from creditors and protection from creditor harassment.

How do debt counsellors handle payment instalments during the process?

• Debt counsellors don’t directly distribute funds to creditors themselves. They work within a system designed for secure and fair distribution.
• You make a single consolidated monthly payment to a designated Payment Distribution Agency (PDA). This agency is a registered and regulated third-party organization.
• The debt counsellor will have established a debt repayment plan with your creditors through the court-approved debt rearrangement order. This plan outlines:
  • The total amount you owe to each creditor.
  • The percentage of your monthly payment allocated to each creditor.

The PDA’s Role:

• Once you make your monthly payment to the PDA, they handle the distribution process:
  • They receive your payment.
  • They distribute the funds to each creditor according to the pre-determined percentages in your debt repayment plan.
  • They might provide you with statements detailing the distribution breakdown.

Transparency and Communication:

• The debt counsellor should provide you with a clear understanding of the distribution process. This includes:
  • How much is allocated to each creditor in your monthly payment.
  • The expected timeframe for creditors to receive their allocated funds.
  • Contact information for the PDA in case you have any questions.

Benefits of Using a PDA:

• This system ensures a fair and transparent distribution process.
• It minimizes the risk of errors or delays in creditor payments.
• It frees you from the burden of managing individual payments to multiple creditors.

Debt Counsellor’s Oversight:

• While the PDA handles the day-to-day distribution, the debt counsellor likely maintains communication with them.
• They can monitor the process and address any discrepancies or issues that might arise.

Debt counsellors can’t directly control how much you pay each month, but they can significantly influence the structure and management of your instalments during debt review:

• Their primary role is to negotiate with creditors to secure reduced monthly instalments within the debt rearrangement order. This forms the core of making debt review manageable.
• They negotiate extended repayment terms. This spreads out your debt over a longer period, making individual instalments smaller and easier to manage.
• In some cases, they might negotiate payment priority with certain creditors. This ensures essential debts like housing are paid first, while addressing other debts at a more manageable pace.

Remember: Debt counsellors can’t magically make your instalments disappear. However, their expertise in negotiation, financial planning, and understanding debt management can significantly improve your ability to make consistent and manageable instalments throughout debt review.

What are the rights of consumers in debt review?

• Consumers have the right to a fair and reasonable debt repayment plan, to be treated fairly by creditors, and to receive regular updates on their debt repayment progress.

How do debt counsellors handle the distribution of payments to creditors?

• Debt counsellors handle the distribution of payments to creditors by creating a payment plan that is affordable for the client and ensuring that creditors receive their payments on time.

What are the implications for me if I miss my debt review instalments?

• Missing payments will lead to arrears on your debt. This means the total amount you owe will increase due to additional interest charges on the missed payments.
• On top of interest charges, creditors might also impose late payment fees for missed instalments. These fees can further strain your finances.
• Missing payments will negatively affect your credit score. This can make it difficult to access credit in the future, like loans or mortgages, and could result in higher interest rates if you do qualify.
• A consistent pattern of missed payments can be considered a breach of the court-approved debt rearrangement order established during debt review.
• If you breach the order, the debt counsellor might be forced to terminate your debt review program. This would mean:
  • Losing the protections of debt review, such as restrictions on creditor legal actions.
  • Creditors resuming collection efforts, including calls, letters, and potentially legal actions like summons or judgements.
• Once outside debt review, creditors can pursue legal means to recover their debts, which could include asset repossession (like your car) or wage garnishment (taking money directly from your paycheck).

Severity of Consequences

The severity of the consequences depends on the:

• Number of Missed Payments: A single missed payment might be addressed with a warning or a repayment plan for the missed amount. However, consistent missed payments will lead to stricter actions.
• Reason for Missed Payments: If you have a valid reason and communicate openly with your debt counsellor, they might be able to help you find a solution. However, a lack of communication or deliberate non-payment will likely result in harsher consequences.

Importance of Communication with your Debt Counsellor

If you anticipate difficulty making a payment, it’s crucial to communicate with your debt counsellor as soon as possible. They can explore options like:

• Negotiating with Creditors: They might be able to renegotiate the repayment plan to make instalments more manageable.
• Budget Review: They can help you review your budget to identify areas for cost-cutting to free up funds for the instalments.
• Seeking Additional Support: In some cases, they might connect you with resources or programs that can offer temporary financial assistance.

Remember: Missing instalments can significantly complicate your debt review journey. Open communication with your debt counsellor is vital to avoid these negative consequences and stay on track towards becoming debt-free.

Can I use my credit cards during debt review?

• No, you cannot use your credit cards during debt review, as this can lead to further accumulation of debt.

How do debt counsellors handle secured lending in debt review?

Secured lending presents a unique challenge in debt review because the creditor has a security interest in an asset you own, like a car or a house. This means they can repossess the asset if you don’t meet your repayment obligations.

The counsellor will aim to secure lower monthly instalments for secured debts as well. This frees up more of your income to service other unsecured debts included in the debt review plan.

It’s important to understand that even with debt review, there’s still a risk of repossession if:

• You consistently miss payments.
• You breach the terms of the debt rearrangement order.

In some cases, the debt counsellor might explore the option of selling the secured asset if:

• The debt is too high relative to the asset’s value (upside down loan).
• Selling the asset allows you to pay off the debt entirely and free up your income for other debts.

Any significant changes to secured loan terms, like extending the repayment term, will require a court order.

The Debt Counsellor’s Role:

• The debt counsellor will assess your secured debts and the associated risks.
• They’ll develop a negotiation strategy tailored to your specific situation, considering factors like the asset’s value and the loan terms.
• They’ll communicate with the secured creditor on your behalf to present a revised repayment plan.
• They’ll keep you informed of the progress and potential outcomes of the negotiations.

What are the implications for me if I decide to go under debt review?

• Debt review offers a structured approach to managing your debt. A debt counsellor will:
  • Negotiate with creditors to potentially reduce interest rates and monthly payments, making your debt more manageable.
  • Create a realistic repayment plan that considers your income and expenses.
• Under debt review, you gain legal protection from creditor actions like:
  • Summons and judgments: Creditors cannot take legal action to recover debts through the court system.
  • Asset repossession: Creditors are generally restricted from repossessing your assets (like your car or house) as long as you adhere to the repayment plan.
• Debt counsellors can provide financial education and budgeting guidance, empowering you to manage your finances better and avoid future debt problems.
• Debt review can alleviate the stress and anxiety associated with overwhelming debt by providing a clear path towards financial recovery.

Negative Implications of debt review

• Entering debt review will be flagged on your credit report for the duration of the process, typically a few years. This can make it difficult to access new credit, like loans or credit cards, during this time. However, debt review is not a blacklisting and does not permanently damage your credit score.
• You will typically make one consolidated monthly payment to a Payment Distribution Agency (PDA) instead of multiple payments to individual creditors. While this simplifies management, it might feel like a larger sum leaving your account each month.
• Debt counsellors charge fees for their services. These fees are usually regulated and often incorporated into your repayment plan.
• Debt review can take several years to complete, depending on the amount of debt you owe. This can feel like a long commitment, but it ultimately leads to becoming debt-free.

Important Considerations before you apply for debt review

• Debt Review is not a Debt Cancellation: You are still obligated to repay your debts, but under a more manageable structure.
• Commitment is Key: Debt review requires your active participation and adherence to the agreed-upon repayment plan. Missing payments can have negative consequences.
• Seeking Professional Advice: Consulting a registered debt counsellor allows you to discuss your specific situation and understand if debt review is the right solution for you.

Overall:

Debt review can be a powerful tool to regain control of your finances and become debt-free. However, it’s not a quick fix and comes with certain limitations. Weighing the positive and negative implications, and consulting a debt counsellor, will help you make an informed decision about whether debt review is the best path for your financial situation.

How do debt counsellors handle unsecured lending in debt review?

Unsecured debts, like credit cards, store accounts, and personal loans, are a primary target for debt review intervention. The debt counsellor’s goal is to make these debts more manageable through:

• Negotiating Reduced Interest Rates: They’ll negotiate with creditors to significantly lower interest rates on unsecured debts. This can substantially reduce your monthly payments.
• Extended Repayment Terms: They’ll aim to secure longer repayment terms for unsecured debts. Spreading the debt out over a longer period makes the monthly instalments more affordable. Reduced Total Debt: In some cases, the counsellor might explore options to reduce the total outstanding balance of unsecured debts. This could involve reckless lending investigations, claiming prescription and debt settlement negotiations with creditors, but it’s not always a possibility.

What are the benefits of debt review for consumers?

• Debt counsellors negotiate with creditors to secure lower interest rates and potentially extended repayment terms. This translates to significantly lower monthly payments, making your debt more manageable.
• You typically make one consolidated payment to a Payment Distribution Agency (PDA) instead of multiple payments to various creditors. This simplifies managing your debt obligations.
• A debt counsellor creates a realistic repayment plan based on your income and expenses, ensuring you can afford your monthly contributions and work towards becoming debt-free.

• Once under debt review and with a court-approved debt rearrangement order, creditors are generally restricted from taking legal actions against you, such as:
  • Issuing summons or judgments
  • Repossessing assets (like your car)
  • Initiating legal proceedings to collect the debt
• Debt review can alleviate the significant stress and anxiety associated with overwhelming debt by providing a clear path towards financial recovery.
• Many debt counsellors offer financial education and budgeting guidance, empowering you to manage your finances better and avoid future debt problems.
• Debt review provides a structured framework to repay your debts in a manageable way, ultimately leading you to become debt-free.
• While entering debt review does have a short-term negative impact on your credit score, successfully completing the program and adhering to the repayment plan can demonstrate responsible financial management and eventually lead to credit score improvement.

How do debt counsellors handle service agreements in debt review?

• The debt counsellor might explore the possibility of cancelling the service agreement if it’s no longer essential or you can’t afford it within your new budget. This might involve negotiating early termination fees with the service provider.
• In some cases, the counsellor might negotiate a temporary suspension of the service with a possibility of resuming later. This can provide some short-term financial relief while you focus on repaying existing debt.
• Less frequently, the counsellor might attempt to renegotiate the terms of the service agreement, potentially securing a lower monthly fee or a customized payment plan. This depends on the specific service and the provider’s flexibility.

Key Considerations:

• Terminating or suspending a service agreement might come with early termination fees or other penalties outlined in the contract. The counsellor will factor these into their recommendations.
• Cancelling essential services can negatively impact your credit score, so the debt counsellor will weigh the pros and cons carefully.
• The counsellor might suggest exploring alternative service providers with lower costs if cancellation isn’t an option.

What are the implications for me if I decide to withdraw from debt review?

• You’ll no longer have a consolidated payment managed by the debt counsellor. You’ll revert to making individual payments directly to your creditors according to the original loan agreements.

• The biggest drawback is losing the legal protections offered by debt review. Creditors can resume legal actions against you to recover their debts, including:

1. Issuing summons and judgments
2. Repossessing assets
3. Initiating court proceedings

• The negotiated reductions in interest rates and extended repayment terms achieved by the debt counsellor might no longer apply. You may face higher monthly payments according to the original loan agreements.
• If you struggle to manage your debts on your own after exiting debt review, you might fall back into a cycle of missed payments and potentially accumulate more debt.
• Creditors might be less willing to negotiate after you’ve withdrawn from debt review, making it harder to secure better repayment terms on your own.

Important Considerations:

1. If you’re considering withdrawing because of financial hardship, there might be options to adjust your debt review plan instead of cancelling it altogether. Discuss this possibility with your debt counsellor.
2. Before withdrawing, carefully consider your ability to manage your debts according to the original loan agreements. Do you have a realistic plan to become debt-free without the structure and support of debt review?

Will my fees be refundable if I withdraw from debt review?

Generally, debt counselling fees are not refundable if you withdraw from debt review after the process has already begun.

Debt counsellors invest time and effort in your case from the beginning. This includes:

• Initial consultation to understand your financial situation.
• Negotiations with creditors to secure lower interest rates and extended repayment terms.
• Creating a court-approved debt rearrangement order.
• Ongoing communication and support throughout the initial stages of debt review.

Can I change debt counsellors during debt review?

Absolutely, you can change debt counsellors during debt review, provided you meet certain conditions. Here’s a breakdown of what you need to know:

You have a Right to Change Counsellors

• You have the right to choose a debt counsellor who you feel best represents your interests and financial situation.
• The National Credit Act (NCA) in South Africa upholds your right to switch counsellors during debt review.

What is the Process for Changing Counsellors in South Africa?

1. Research and choose a registered debt counsellor you feel confident with.
2. You’ll need to notify your current counsellor in writing (email or letter) of your intention to switch.
3. Form 17.7: This form, officially called a “Notice to Change Debt Counsellor,” is crucial. Your current counsellor should provide you with this form. It needs to be completed and signed by both you and your new debt counsellor.
4. Once the completed Form 17.7 is submitted to the National Credit Regulator Debt Help System (NCR DHS and to all Credit Providers, your new debt counsellor can officially take over your case. They will handle communication with creditors, manage your debt rearrangement order, and provide ongoing support.

Things to Consider when changing to a new debt counsellor

• Fees Associated with Change: While not always the case, there might be some fees associated with switching counsellors. These could include outstanding fees owed to your current counsellor or an administration fee from the new counsellor. Discuss these potential costs upfront.
• Impact on Debt Review Process: Changing counsellors might cause a slight delay in your debt review progress while the transfer process is completed. However, an experienced debt counsellor should ensure a smooth transition with minimal disruption.

Reasons to Consider Changing Counsellors

• If you feel your current counsellor isn’t communicating effectively or isn’t responsive to your questions and concerns.
• If you’re not happy with the overall service or progress under your current counsellor, a switch might be beneficial.
• If your financial situation or debt profile has changed significantly, a new counsellor might be able to provide a more tailored approach.

How do debt counsellors handle the submission of debt counselling applications?

• Most debt counsellors offer a free initial consultation to understand your financial situation and determine if debt review is the right solution for you.
• During the consultation, the counsellor will likely provide you with a debt review application form. This form typically gathers details about your:
  • Personal information (name, ID number, contact details)
  • Employment status and income
  • Monthly expenses
  • List of creditors and outstanding debt amounts (including interest rates)
  • Assets and liabilities
• You might be required to submit supporting documents like payslips, bank statements, and credit agreements to verify your financial situation.

Processing and Verification of the submitted debt review application.

• Once you submit the completed application and supporting documents, the debt counsellor will:
  • Review your information for completeness and accuracy.
  • Verify your debts with the credit bureaus. This ensures all creditors and outstanding balances are accurately reflected.
• The counsellor will assess your situation against the National Credit Act (NCA) regulations to determine if you qualify for debt review. Qualification generally depends on factors like:
  • Being over-indebted (owing more than you can afford to repay).
  • Not having a history of reckless credit behaviour.

Communication and Next Steps:

• The counsellor will keep you informed of the application progress. They might contact you for any missing information or clarification on specific details.
• If you qualify: The counsellor will explain the next steps involved in the debt review process, including:
  • Negotiating with creditors to secure lower interest rates and extended repayment terms.
  • Establishing a court-approved debt rearrangement order outlining the new repayment plan.
  • Setting up a Payment Distribution Agency (PDA) to manage your monthly debt consolidation payments.
• If you don’t qualify: The counsellor should explain the reasons for ineligibility and potentially offer alternative solutions for managing your debt.

Timeline:

The application processing timeline can vary depending on the debt counsellor’s workload and the time it takes to verify your information with credit bureaus. It typically takes a few days to a week for an initial decision on your application.

Remember: Debt counsellors play a crucial role in initiating your debt review journey. Submitting a complete and accurate application is the first step. The counsellor’s expertise helps ensure a smooth and efficient application process.

Can I apply for debt review if I am married in community of property?

Yes, you can apply for debt review if you are married in community of property, but there are some important considerations;

• Since your estate is considered one joint entity in a community of property marriage, both you and your spouse must apply for debt review together. This means your combined debts and financial situation will be assessed to determine eligibility and establish a debt rearrangement plan.
• One spouse cannot enroll the other in debt review without their consent. Open communication and agreement between both partners are crucial before proceeding.
• Debt review will affect your spouse’s credit score as well as yours, and their income will be considered when determining your combined affordability for the debt repayment plan.
• Once under debt review and with a court-ordered debt rearrangement plan, both you and your spouse benefit from legal protection against creditor actions like asset repossession and summons. Debt Repayment Responsibilities: The debt counsellor will establish a consolidated repayment plan based on your combined income. You’ll typically make one monthly payment to a Payment Distribution Agency (PDA) which will then distribute the funds to your creditors according to the plan.

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