Do debt counselors deserve the flak they are getting from the media?

Recently there have been several editorials in the media about consumers’ bad experiences with debt review. Often, the debt counselor is blamed for the failure of this valuable resource.  Because debt review and debt counselors are getting so much bad press, I wanted to give you a rundown of what you can – and cannot – expect from your debt counselor. This article will discuss what the role of a reputable debt counselor is, what your responsibilities are during debt review, and which red flags to watch out for when approaching a debt counselor for debt review.

The role of the debt counselor

Debt counselors are negotiators. We have a certain amount of authority and specific duties as stipulated in the National Credit Act of 2007.  This means that we can negotiate extended credit terms at reduced rates and obtain these extended terms as an order of the Court, which in turn offers you certain legal protections. However, you cannot expect miracles from us, such as making large chunks of your debt disappear, or helping you obtain new credit whilst still under debt review. Although we are expert negotiators, we are not magicians.

What you should get from a reputable debt counselor

A reputable debt counselor should provide you with the necessary debt review information before you start. If you have a reputable debt counselor on your side, the following will be made clear to you before you sign the Form 16:Debt review is for paying off ALL debt. In other words, everything must have nil balances (except home loans) before you stop payingIf you are reluctant, do not start debt review. Please be sure that you want to pay off ALL your debt before entering debt review. I cannot emphasize this enough. See the section, “What happens when you stop paying your debt review”

If any circumstances change (such as reduction of salary or job loss), youmust contact your debt counselor and provide proof of the reduced income.

If you become unemployed for whatever reason, you are urged to find a job as soon as possible, so you can pay something towards debt review.If you are claiming UIFand a portion of debt review can be paid, communicate with your debt counselor.

These are the duties performed by a reputable debt counselor:

A reputable debt counselor will receive your inquiries per email, telephone, WhatsApp and social media. They will then provide you with a counselling session.

  • During the counseling session, the debt counselor will talk to you about your unique situation to ascertain your financial ability to repay your debt within a reasonable repayment period (not exceeding 5 years)
  • They will work with you to draw up a feasible budget according to your personal and family commitments so youare able to pay essential expenses while at the same time committing to a minimal repayment to your creditors under debt review
  • The Form 16 application form will usually be completed during this conversation and a credit report will be done by the debt counselor to establish the accuracy of the assessment
  • Once you have signed the Form 16 and sent it back to the debt counselor, she must capture your information and notify the creditors via a Form 17.1. At this point, you are under debt review;
  • As with a credit agreement, you have a five day cooling off period. If you change your mind during the first 5 days, you must notify your debt counselor and she must remove your name from the NCR Debthelp and advise the creditors and credit bureaus of the rejection
  • The creditors will communicate with your debt counselor and update your balances and installments
  • Your debt counselor will do certain calculations and prepare a proposal based on your affordability and send it to the creditors for their approval.  At this point, your debt counselor might increase your payment slightly in order to adequately cover your debt repayments within the 5 year guideline
  • Should any circumstances change such as reduced income, retrenchment or unemployment the debt counselor must provide creditors with a new, temporary repayment arrangement
  • Your debt counselor must instruct an Attorney to take the new arrangements to court to obtain a Court Order which is when your reduced interest rates become active.

What happens if you stop paying your debt review?

  • If you stop paying debt review without any valid reason or communication between you, your debt counselor and creditor, the creditor WILL terminate your debt review. 
  • The result is catastrophic as your creditors will no longer communicate with the debt counselor. They will instruct their collections partners to commence phone calls and legal action against you, because they have stopped receiving your payments
  • Despite the creditor terminating the debt review, the debt counselor may not remove debt review from your credit profile, as the debt is not settled: you will not be able to obtain clearance.
  • If you are one of the unfortunate people who have been terminated from debt review by your creditor providers, you will need to manage your debt without the support of the debt counselor.  Pay off all your debt and ask each creditor for a paid up letter whenever you settle a credit agreement.  Once you have all your paid-up letters, you can give this to your debt counselor who will issue your clearance certificate and remove your name from the NCR Debthelp system and credit bureaus. The debt counselor may request an additional payment for this duty.

Debt Review under a reputable debt counselor

If you remain within debt review with the help of a reputable debt counselor, you can expect a smooth process and a happy ending. You will receive statements each month from your PDA (Payment Distribution Agent) and you will be able to monitor payments. If at some point in the future, you can increase your payments, let your debt counselor know. Once the debt is paid off, your debt counselor will request paid up letters on your behalf and when the last one is in, the debt counselor will issue your clearance certificate without an additional fee.

Debt Review and debt counseling red flags – what to beware of:

  • Be aware of a debt counselor who changes your budget so much that you cannot afford to feed your familyand make the minimum monthly creditor payment. This might imply that reckless credit has taken place;
  • Your debt counsellor’s fee is based on your monthly payment amount limited to R9,000. The higher the amount, the more your debt counselor can make. If they are increasing your monthly payment beyond what you can afford, they might be doing it to collect higher fees.

Your responsibility in the process

Although a reputable debt counselor will volunteer the necessary information, it is your responsibility to make sure you understand the debt review process before you commit.

  • Be sure you are talking to your Debt Counselor.Ask lots of questions: this is YOUR debt review and it is important that you are comfortable with the person who is handling your debt;
  • You must pay EVERY month until fully settled.
  • Keep the communication channels open between you and your debt counselor. Notify them of any changes in your circumstances and make sure that you are having a dialogue with them about your concerns.

What you cannot do under debt review and why

You cannot apply for any credit, home loan, vehicle finance, credit card or personal loan while under debt review.

Your debt counselor is negotiating on reduced interest, extending your monthly repayments and reducing your instalments with creditors. There is a concession provided by your credit providers: they will wait a lot longer to receive full settlement of their debt.Does it sound fair that you should be granted credit by another creditor if your current credit has not been adequately settled?

What you can do under debt review

What you can dounder debt review

Your debt counselor needs to ask you for details during your initial conversation, don’t leave anything out!):

  • Rent a property (within the rental amount as per your budget)
  • Pay electricity as per your budget
  • Pay school fees (declare this in your budget)
  • Pay petrol/travelling expenses
  • Buy Groceries;
  • Pay policies;
  • Keep to contracts such as Cell phones
  • Pay bank fees;
  • Pay After-care for your children;
  • In other words:  Reasonable living expenses! 

This is a transparent process and your creditors will have access to examine your budget for any excessive expenditure.

Know ahead of time what debt review entails

As you can see from this article, it is of utmost importance to know ahead of time what the debt review process will entail. When you know what to expect from your debt counselor, have confidence to ask the right questions and are working with a reputable debt counselor, the chances are good that you will have a much more positive debt review journey than we have seen covered by the media.