Credit counselors provide a wide range of services, from simple money management guidance to developing a debt repayment strategy. If you have a lot of unsecured debt that you’re having trouble paying off—especially credit cards—but aren’t ready to take more serious actions like bankruptcy, your credit counselor may suggest starting a debt management plan.
A debt management plan requires you to make a single monthly payment to the agency for all of your qualified obligations, which the agency then splits and pays your creditors directly. You’ll usually have to pay a small cost up front as well as a monthly subscription for the service, and you’ll almost certainly have to close the credit cards that are part of the plan.
Credit counseling streamlines your debt repayment process, making it easier to pay off your debt in the long run. Credit counselors may be able to negotiate lower interest rates, decreased monthly payments, and other concessions with your creditors, potentially saving you money.
What effect will all of this have on your credit report? A creditor may add a comment to the account on your record if you repay a debt under a debt management plan. When future lenders do a credit check throughout the application process, they will see the remark, but it will have no effect on your credit score.
However, some components of the credit counseling procedure might have a positive or negative impact on your credit score.
Is debt counseling a good idea?
If you are over-indebted, a debt counsellor can work with your creditors to negotiate lower interest rates and monthly payments on your behalf. This makes your debt more manageable and teaches you accountability because if you skip a payment, your agreement with your debt counsellor will be voided.
Debt counselling cons
- Because you’re paying lower sums each month, your debts may take longer to pay off.
It’s critical to obtain a credit report in order to determine how poor your credit score is. This might help you decide if you need the services of a debt counselor or whether you can improve your credit score on your own.
Does debt counseling affect credit score?
Do you want to organize your finances this year but aren’t sure where to begin? We recommend pulling your credit report to see where you stand right now; it’s a lot easier than you think!
What’s all the hullabaloo about credit scores? Simply put, your credit score will influence your capacity to obtain future credit. Imagine saving up enough money to put a down payment on your dream home, only to have your bond application denied because your credit score isn’t up to par.
Your credit report will provide you with a detailed account of your financial history, including information on your borrowing and spending habits, payment patterns, and personal information. You’ll be able to examine every account you’ve ever established, every payment you’ve missed, every judgment you’ve gotten, and the remaining balance you owe your creditors. It’s critical to check your credit report at least once a year to stay informed about your credit situation, assess where and how you might improve, and ensure that all of your personal account information is right and that you haven’t been a victim of identity theft.
According to Transunion, just about 5% of South African customers take use of the law, which allows them to receive a free credit report from any credit agency once a year. You can get your credit report by going to any of the South African Credit Bureau’s websites and following the on-screen instructions. If you want a more in-depth look and comprehension of your credit report, you may utilize a credit monitoring service like Kudough, which can give you with an in-depth credit check, as well as recommendations and advice on how to comprehend the ins and outs of your credit report.
Debt counseling will not have a negative impact on your credit score; in fact, it may improve it. Because you’ll be protected by the National Credit Act while you’re in debt counseling, the credit bureaus won’t be able to add any more negative information to your credit profile. Your debt counsellor will report your application for debt counseling to the credit bureaus, and your credit profile will be identified. Credit providers will no longer be able to pursue you in court. If you’re in debt counseling, it’s critical that you keep up with your payments each month and contact your debt counselor if you have any problems.
Maintain awareness of your present financial situation and safeguard yourself by ensuring that your information is accurately reflected on your credit report. Make a strategy for establishing and maintaining a positive credit history in order to attain the long-term financial goals you’ve set for yourself.
What are the advantages and disadvantages of debt Counselling?
Debt counselling was implemented as a solution to assist consumers struggling to service their debts under the National Credit Act (NCA) of 2005. Debt Sage has assisted many people in becoming debt-free by providing debt counseling. When a person is deeply in debt, the benefits of debt review outweigh the drawbacks. Debt counseling has a number of advantages, which we will go over below.
WHAT ARE THE ADVANTAGES OF DEBT COUNSELLING?
I’m happy you inquired. If you’re thinking about applying for debt counseling, it’s critical to know what the benefits of debt counseling are before you join up. The benefits of debt counseling are addressed further down.
This is most likely the most crucial benefit of seeking debt counseling. The capacity to manage money is essentially a behavioural trait. When you apply for debt review, you lose access to credit and must rely on your income or cash to fulfill your household obligations without resorting to borrowing. This trains people to pay with cash for all purchases and to spend less in general. Once you’ve mastered this, you’ll be well on your way to building wealth without taking on debt.
If someone wins the lottery, they will be able to pay off their debt. You can quickly pay off or increase your monthly contribution amount if you come into some money. This means that if your financial condition is poor, you can make smaller monthly installments during that time and increase them as your situation improves. This will help you get out of debt review faster.
When someone is overextended, it is vital that they cease borrowing and concentrate on debt repayment. If one’s debt or financial condition is causing them worry, the obvious and wisest course of action is to stop borrowing and focus on paying off the debt. When confronted with massive debt, this is the only way to be rehabilitated, and debt counseling provides that focus. A debt counsellor delivers a clearance certificate to a consumer once they have completed paying off their debt, indicating that they have completed all of their debt counselling duties. The consumer’s credit bureau listing is removed, and he or she is free to apply for fresh credit.
Although the consumer has been tagged for debt counseling, there is no permanent trace of debt counseling on credit bureaus.
Credit bureaus do not record a consumer’s participation in debt counseling. The consumer’s credit bureau record is deleted once the debt counsellor has issued the consumer’s clearance certificate. A debt counselling order appears on one’s credit report for the period specified in section 71(1) of the National Credit Act 34 of 2005, or until a clearance certificate is issued.
When a person seeks debt counseling, the debt counsellor approaches the courts to obtain a court order binding the restructuring plan that was arranged with the credit issuers. Credit companies, lawyers, and debt collectors will no longer be able to confiscate your property.
Renegotiating and lowering interest rates with credit lenders is part of the restructuring plan. The consumer benefits from the reduction in previously higher interest rates and fees. According to DCRS laws, interest rates on credit cards, retail/store cards, and personal loans can be decreased to 3-5 percent.
When a person seeks debt counseling, they pay one low monthly payment that covers all of their debts.
Debt counseling combines all of your debts into a single, easy-to-manage payment. This is a certainty that should never be overlooked.
Credit card companies and attorneys will no longer phone you seeking payment.
In the first month of a debt review, fees are due, and these fees are set by law. In the second month, legal fees are due as well. The cost of legal representation varies from one debt counselor to the next.
All expenses owed while in debt counseling are factored into the consumer’s repayment schedule. As a result, the consumer can afford to participate in a debt counseling program.
WHAT ARE the DISADVANTAGES OF DEBT COUNSELLING?
There are several drawbacks to seeking debt counseling. The downsides of debt counseling are discussed below.
- You shall not enter any more credit agreements while under debt review, according to section 88(1) of the National Credit Act No. 34 of 2005. Although this is described as a drawback, it is actually a benefit since when one is over-indebted, one’s focus should be on getting out of debt rather than accumulating more debt.
- If a debtor fails to make his or her monthly payments while in debt counseling, the creditor will cancel the application and take legal action. It is critical that the customer adheres to the court order’s agreed-upon amount.
- On a debt review, not all accounts are accepted. Accounts that are subject to a judgment (summons) on a home loan or a vehicle cannot be included in debt counseling.
- A consumer cannot discontinue or withdraw from debt counseling once a debt review court order has been obtained.
- The consumer can no longer approach the court to have the court order rescinded or to file for an order declaring that the consumer is no longer over-indebted as part of the debt review procedure. This is in accordance with the most recent debt review court decision.
- If you are married in COP and your partner is having financial difficulties, you must both apply. This is mostly down to the form of marriage one is in, as getting married in COP means you and your partner are jointly responsible for any debts incurred throughout the marriage.
- Paying lesser monthly instalments may cause you to take longer to pay off your debt. It’s critical to boost payments when your finances improve while you’re under debt review. The more one pays, the sooner they can get out of debt review.
- In the first month of debt counseling, costs are due, and these prices are set by the National Credit Regulator. In the second month, legal fees are due as well. The cost of legal representation varies from one debt counselor to the next. The majority of these expenses, however, are factored into the repayment schedule.
However, if a person is deeply in debt, the benefits of debt counseling exceed the disadvantages.
It is important that you have all the facts before entering any debt solution.
When considering a Debt Management Plan, keep the following points in mind.
- Even if your accounts have defaulted or if you have a County Court Judgement, negotiate reduced payment plans (CCJ).
- Under the Consumer Credit Act, your creditors will still be required to send you letters.
We cannot guarantee a settlement in cases involving County Court Judgements and Bailiffs, despite our extensive knowledge in this area.
If you want any additional information, please contact one of our dedicated customer service representatives by phone or email at 0800 072 6623.
Can you cancel debt Counselling?
The court held in Rougier v Nedbank, 27333/2010 (South Gauteng High Court), that any act by a debt counsellor to terminate or withdraw debt review is outside of the debt counsellor’s statutory powers as declared in the Act, and hence the conduct is forbidden.
The NCR issued the Withdrawal from Debt Review Guidelines on February 25, 2016, as a result of this ruling. Prior to this date, consumers could either request that their debt counsellor issue a Form 17.4 or the debt counsellor would do it on their own. The issuing of Form 17.4 resulted in the consumer or debt counsellor canceling the debt review process on their own volition.
- The Form 17.4 has been replaced by the Form 17.W as a result of the Rougier v Nedbank judgement. This form is only for debt review termination in the following circumstances:
- Prior to the release of Form 17.2, the consumer had withdrawn from the debt review procedure, and the credit bureaus had been informed via the NCR Debt Help System.
- Due to the consumer’s lack of cooperation, the debt counsellor’s services have been suspended. On record, the debt counsellor stays the debt counsellor.
- The debt review order has been revoked by a court order obtained by the customer. The NCR Debt Help System has been used to update credit bureaus.
- A court order has been obtained declaring that the consumer is no longer over-indebted. The NCR Debt Help System has been used to update credit bureaus.
Only points a, c, and d would result in the debt review process being terminated and the debt review signifier being removed from the consumer’s credit reports. As a result, after the Form 17.2 is provided and it is indicated that a consumer’s debt review application has been accepted, the consumer’s credit report will reflect this. According to the NCR’s Withdrawal from Debt Review Guidelines, the only method to end the debt review process is to seek to court for either the revocation of the debt review order, if one was obtained, or a declaration that the consumer is no longer over-indebted.
Can debt Review affect employment?
No, attending Debt Review should not influence a potential employer’s choice to hire you because it demonstrates that you have taken control of your debt problem.
Can I lose my car if I go under debt review?
The NCA protects your assets against repossession, thus your automobile cannot be confiscated while you are going through the debt review procedure. This also means that your creditors will no longer be able to harass or contact you while your debt is being reviewed, which equals less worry for you! Check to see if your debt counselor is a member of the NCR!
Can you get a mortgage after debt consolidation?
While on a debt management plan, you can technically apply for a mortgage. However, you’re unlikely to get the terms you want. You should also make sure that your financial condition permits you to keep up with your mortgage payments on a regular basis.
When a mortgage lender runs a credit check, they can notice the mark of a DMP on your credit record. The DMP note, on the other hand, only stays on your credit report for two years after your DMP ends. A lender may give you a mortgage with less favorable terms, such as a higher interest rate, a bigger deposit, or a shorter term.
If at all feasible, wait two years following your DMP’s completion date. This will improve your prospects of purchasing a home after completing a debt management program.
For more information on specific mortgage alternatives, speak with a mortgage advisor and shop around. Private, specialty lenders, rather than type A lenders like banks, may be able to help you get a mortgage approved.
To find out how much you can afford in mortgage payments, use our mortgage calculator.
What is the disadvantage of debt consolidation?
When it comes to debt consolidation, it’s critical to understand the benefits and drawbacks before taking on more debt.
Taking out a new loan to pay off several bills or credit card balances is known as debt consolidation or credit card consolidation. What are the benefits? Debt consolidation providers claim that borrowing money at a low interest rate to pay off higher-interest loans or credit cards can save you money or help you pay off debt faster. Other benefits include having fewer monthly payments to make and a lower probability of being late on payments.
The downsides of debt consolidation are rarely discussed. It’s possible that, depending on the terms of your new loan, you’ll end up paying more in interest over the life of the loan, or that you’ll end up deeper in debt.
