What is the full debt counselling process?
There are currently a large number of active debt counsellors in South Africa, who are able to provide you with a debt counselling service.
The first step your advisor will take is to try to find out why you have gotten yourself into trouble with your debts. From that point they will then begin working out a plan as to what the best debt solution plan would be.
In general, about 95% of people who approach a debt counsellor for assistance are likely to go through the counselling process. This is a true sign of the immense value of this new service.
The second step in the process…
…is for your advisor to pull a credit report. Your credit report will list all your debt obligations. It will state whether you are in arrears with any of your debts, whether there are any judgements, and whether you’ve defaulted on any of your payments.
The next step they’ll do, is to go through a full monthly budget with you. After your income and salary deductions, they’ll go through everything from groceries, cellphone bills, DSTV, maintenance payments, school fees… every expense. This will give you an idea of what you can reasonably afford to live on.
Once you have worked out that figure, you can then see what amount you’ve go leftover, every month. If, for example, you earn R20-000 net income per month, your living costs are R15-000, what’s left over is R5-000. That amount is what you can reasonably afford to use to repay credit accounts.
The next step is for your counsellor to notify all your credit providers, to tell them that you are under debt counselling. The credit providers will then send you a notice containing the details of how much money you owe, what the interest rate is on that credit account, what the initiation fee is and what the credit life insurances costs are.
At that point, your debt counsellor will use the R5-000 (the amount that you are able to repay every month) and will look at all your credit obligations.
Debt counsellors have mandates, for all credit providers to extend loan terms, strip off fees and reduce interest rates down to ZERO – if necessary – for unsecured debt, in order to get you out of debt.
90% of debt counselling clients who go through this process are debt free within 60months.
So for example, your home loan will extend to 240months from the start of your debt review date. The homeloan fee is stripped off. The interest rate is dramatically reduced. You vehicle repayment term will go to 84 months and the interest rate will also be reduced.
And any unsecured debt – like credit cards or personal loans – will go to 60 months, the monthly fees are removed and the interest rates are reduced from the highest interest bearing accounts first, down to a level that you can afford. To a level where your R5-000 repayment fits.
The last step, is for you to make your monthly payments. All your credit providers will be notified of the new payment structure. They will accept this due to your debt counsellors legal authority. Your R5-000 gets paid to your PDA ( payment distribution authority) which is run by an independent, regulated company. Your PDA will distribute your payment to all your creditors, as agreed.
You then get notified every month with a statement showing you what payments have gone where, and how much your debt has reduced.
Once you finished debt counselling – you have paid all your short term debt – you can cancel out of debt review and are free to go out and live your life, and borrow money again. Hopefully in a responsible manner.