Debt counsellors: An in-depth guide

Do you feel overwhelmed by debt? A debt counsellor can help you regain control of your finances.

This guide explores how a debt expert can assist in managing your debt, setting you on the path to financial freedom.

Introduction to debt counsellors

Debt counselling is a solution for people who can no longer manage their debt load.

It is a legal process that provides a structured way for you to meet your repayment obligations and ultimately become debt free.

Debt counsellors are professionals who help people manage their debt and improve their financial situation. If you are overindebted, they can help you restructure your debt through the legal process of debt counselling.

Debt counsellors are regulated and operate under the National Credit Act.

Here’s an overview of the basics of debt counselling and how debt counsellors can help you.

The role of a debt counsellor

A debt counsellor’s primary role is to help people who are overindebted to regain financial stability.

As a registered professional, your debt counsellor will assess your finances, and negotiate lower credit rates and a restructured repayment plan with your creditors.

They recognise that every client’s situation is unique, so if you enter debt counselling, they will use appropriate tools to help you budget, change your spending habits, and stick to your repayment plan.

Understanding the need for debt counselling

Nobody plans to get into unmanageable debt, but rising living costs, high interest rates, increasing financial responsibilities, and easy access to credit can make it difficult to stay on top of your finances.

Failing to keep up with your repayments can lead to penalties, further credit use and, eventually, a spiral of debt.

Debt counselling is a structured, long-term solution to help you regain financial stability.

Below are some red flags indicating that you may need the guidance of a debt counsellor.

Signs that you need a debt counsellor

The first step towards financial recovery is recognising that you may need debt counselling. Key signs that you may need help include:

• You’re struggling to make minimum payments
• You have to choose between paying bills and paying for everyday necessities
• You receive frequent calls from creditors
• You use credit for everyday expenses
• You have too much debt (excluding your home loan)
• You’re uncertain how much you owe, and to whom
• You’re juggling multiple credit accounts without a clear repayment strategy
• You’re under constant stress, mostly caused by money worries

Common misconceptions about debt counsellors

Many people are unsure of how debt counselling works, so it’s understandable that you may be anxious about the process.

Here are some common misconceptions about debt counsellors.

• Myth #1: They only help people who are bankrupt. In reality, they can help anyone who is struggling with debt, whether they’re just starting to fall behind with payments or are in deep financial trouble. They can provide guidance and help you understand your financial situation.
• Myth #2: They take over your finances. Some believe a debt counsellor will take control of your money and decide how you spend it. However, this isn’t true – they provide guidance and help you create a structured plan, but you remain in charge of your spending.
• Myth #3: They keep you trapped in debt counselling. In reality, you can exit the process as soon as you’ve paid off your restructured debts (excluding home loans) and can prove you are no longer overindebted.
• Myth #4: They take advantage of people. Although there are some debt counsellors who operate illegally, those who are accredited and registered operate legally and ethically. They help people regain their financial stability. Always verify a debt counsellor’s credentials before you work with them – in South Africa, they must be registered with the National Credit Regulator (NCR).
• Myth #5: Working with a debt counsellor will damage your credit score. In fact, the impact on your score is less severe than if you repeatedly miss payments.

If you think your debt is becoming a heavy burden, take action – don’t wait until you’re buried under a mountain of unpaid bills. 

A debt counsellor can help you review your finances and determine whether you are overindebted and qualify for debt counselling.

The benefits of working with a debt counsellor

Working with a debt counsellor offers several benefits.

Financial stability and stress reduction

One of the main benefits of consulting a debt counsellor is that they can put you on the path to financial stability.

Your debt counsellor will help you reduce your debt bit by bit, through a structured repayment plan that consolidates your debt into one manageable monthly payment.

They will guide you through each step of the process, helping to alleviate some of the anxiety associated with managing overwhelming debt.

You’ll get peace of mind and a clear path to debt freedom, through:

1. Professional guidance. A debt counsellor can help you understand your financial situation and devise a strategy for managing your debt.
2. Reduced interest rates. Debt counsellors can negotiate with your creditors to lower interest rates, saving you money in the long run.
3. A structured payment plan. A debt counsellor can create a customised plan to help you pay off your debts through a single monthly payment over a period of time, making it easier to manage your payments.
4. Protection from legal action. Once you’re under debt counselling, your creditors aren’t allowed to take legal action against you.

Improved credit score

Working with a debt counsellor can help improve your credit score over time.

At first, your score may drop slightly – but as you make regular payments and reduce your debt, it will slowly start to improve.

By sticking with your debt counsellor’s payment plan and keeping up with your restructured payments, you will gradually raise your credit score. Being responsible with your money will open better credit opportunities in the future.

Choosing the right debt counsellor

It’s essential to choose a debt counsellor that can give you the best possible support.

Always follow these important steps when looking for one.

1. Check their qualifications. Debt counsellors should be registered with the NCR.
2. Check their reputation. Read reviews or ask for recommendations from others who have used debt counselling services. Positive feedback can help you feel more confident about their services.

What else should you look for when choosing a debt counsellor? Here are some pointers.

Qualifications and experience

Not only should debt counsellors be registered with the NCR, they should also be experienced in helping people who are overindebted through the debt counselling process. The more experience they have, the better they can guide you.

Choose a counsellor from a company with a proven track record in debt management, who has a compassionate approach and the expertise to provide sound financial guidance.

Fees and services

A good debt counsellor will explain their fees clearly, along with what services they provide. Transparency is key.

Note that a qualified debt counsellor will never ask you for an upfront payment – this is illegal. If someone does ask to be paid upfront, report them to the NCR.

Success stories and case studies

How DebtBusters can help you now

If you’re ready to take back control of your finances, DebtBusters can help.

Our debt experts can assist you with personalised debt management plans, support, and proven strategies to relieve your debt burden.

Explore DebtBusters’ debt solutions for restructuring your repayments, consolidating your debts into one monthly payment with a lower interest rate, monitoring your credit, and more. 

Contact us today for expert guidance and personalised support.

Debt counsellors: An in-depth guide – FAQs 

1. What is a debt counsellor?

A debt counsellor is a registered professional who helps overindebted people manage and restructure their debt through a formal debt review process.

They can help you meet your financial obligations while protecting you from legal action by creditors.

2. How do I know if I need a debt counsellor?

You may need a debt counsellor if:

• You struggle to pay your bills and meet your monthly debt repayments
• You rely on credit to cover basic expenses
• Creditors are threatening legal action due to unpaid debts
• More than 40% of your income goes towards debt repayments

3. How does debt counselling work in South Africa?

• A debt counsellor assesses your finances to determine if you’re overindebted
• They negotiate reduced interest rates and restructured payment plans with creditors
• The new, approved repayment plan means creditors can no longer take legal action against you
• While under debt counselling, you make a single reduced monthly payment to cover all your debts

4. Is debt counselling the same as debt consolidation?

No. Debt consolidation typically involves taking out a new “consolidation loan” that combines multiple debts into one.

Debt counselling involves restructuring existing debt with reduced interest rates and extended payment terms. It is sometimes referred to as “consolidating your debt without taking out a loan”.

5. Will debt counselling affect my credit score?

Yes, debt counselling can impact your credit score, but this is largely because of missed payments before or during the process. Ultimately, debt counselling helps you to improve your credit score by assisting you with paying off debt responsibly.

6. Can I still take out credit while I’m in debt counselling?

No, you can’t take out new credit while under formal debt counselling. This restriction is in place to help you regain financial stability and prevent further overindebtedness. Trying to take out credit while under debt counselling will violate your agreement and lead to complications with your creditors.

However, once you exit debt counselling and receive a debt clearance certificate, you will qualify for credit again.

7. Can creditors take legal action against me while I’m in debt counselling?

No. Once the debt counselling process is underway, creditors are not allowed to take legal action against you, provided you stick to the agreed repayment plan.

8. How long does the debt counselling process take?

Most clients complete debt counselling within three to five years, depending on:

• The total debt amount
• Monthly repayment ability
• The negotiated repayment terms

9. Can I exit debt counselling early?

Yes. If you settle all your debts (excluding home loans) while in debt counselling, a debt counsellor can request a clearance certificate, which will remove the debt counselling flag from your credit record, allowing you to exit the process early.

You will need paid-up letters from your creditors before you can make this request.

10. What types of debt qualify for debt counselling?

Most credit agreements, including:

• Credit cards
• Personal loans
• Retail store accounts
• Vehicle finance (to prevent repossession)
• Home loans (to prevent repossession)

Note that principal amounts and interest on your bond are reduced while you’re under debt counselling, but once you get a clearance certificate, the principal amounts and interest go back to their original amounts.

11. What types of debt do not qualify for debt counselling?

 Some debt does not qualify you for debt counselling, including:

• Utility accounts, such as rates and electricity 
• Cellphone contracts
• Gym memberships
• Informal loans 
• Tax debt owing to SARS
• Maintenance orders

12. How do I choose a registered debt counsellor in South Africa?

Ensure the debt counsellor is registered with the NCR. Verify their registration on the NCR website before signing up for their services.