Tag: <span>debt counselling</span>

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Why see a Debt Counsellor?

Another common “debt” question is : If I get a Letter of Demand and/or the threat of legal action from a creditor, wouldn’t it be better to consult an Attorney rather than a Debt Counsellor?

Thanks to the National Credit Act, there are areas relating to debt where Debt Counsellors actually have more authority than Attorneys. This law says that a consumer (a term which applies to anyone who purchases just about anything) who has debt with which they are struggling can apply to a Debt Counsellor to be declared over-indebted. No-one else (not even an Attorney) has the authority to declare a consumer to be over-indebted.

Once a consumer has been declared over-indebted, this law also states that their creditors must co-operate with the Debt Counsellor in re-arranging the debts. This authority to re-arrange means that :
(a) The Debt Counsellor works with the CURRENT situation, and can disregard the history of the account (e.g. how far in arrears it is). If the consumer consulted an attorney, it’s probable that they would first have to make arrangements to pay all or part of any arrears to avoid legal action ;
(b) Even if a consumer’s account IS in arrears, the consumer is protected from any legal action by their creditors AS SOON AS they’ve applied for Debt Review. However, even if the consumer makes an arrangement with their creditors, anecdotal evidence has shown that this is NOT a guarantee that the creditors will not proceed with legal action ;
(c) Because the consumer’s debts are being re-arranged when under Debt Review, many creditors are prepared to negotiate a lower interest rate with the Debt Counsellor. If the debts/accounts are NOT placed under Debt Review, the original contract (including the contractual interest rate) remains in effect. Not even a Magistrates Court can order a creditor to reduce an interest rate, as the original contract is a legally binding agreement.

Before the wrath of the entire legal profession descends upon me, I must clarify that I am NOT trying to elevate Debt Counsellors above Attorneys. As a Debt Counsellor, though, I take pride in our profession and in the importance of the role that the National Credit Act has conferred on us.

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Debt Review vs Administration

As Registered Debt Counsellors, we’re probably biased, but we genuinely believe that Debt Review is usually the best mechanism available for resolving over-indebtedness. Before the National Credit Act was passed (in 2007), the only options for consumers who needed relief from their debt burden were Sequestration (also known as Bankruptcy) – which has serious long-term consequences – or Administration. Here are five reasons that we feel that Debt Review is a significant improvement on Administration :

  1. Debt Review doesn’t just aim to make a consumer’s debt repayments more affordable (although that IS a major focus) ; It also aims to assist the client to become completely debt-free. Debt Counsellors can generally re-negotiate interest rates and get them significantly reduced. Because Administration and other debt resolution mechanisms can’t do this, clients who are paying lower instalments could end up with ever-increasing balances, and never actually pay the debt off. Also, once a client’s debts have been settled via Debt Review, the Debt Counsellor will issue a Clearance Certificate and update the Credit Bureaus accordingly  ;
  2. Debt Counselling fees (as regulated by the National Credit Regulator) are lower than the fees which Administrator are allowed to charge. Both are a percentage of the client’s payments but, whereas Administrators can charge 12,5%, a Debt Counsellor’s fee is only 5% ;
  3. Administration can only deal with debts up to a maximum value of R75 000, whereas Debt Review has no upper limit, and can restructure (and protect from legal action including repossession) Home Loans, Vehicle loans, large Personal Loans and Credit Card debts, etc. ;
  4. Administrators are only obligated to make payments to creditors every three months, whereas Debt Review distributes payments every month. This results in less interest accruing between payments, thereby reducing the outstanding balance more quickly ;
  5. Debt Counsellors are monitored and regulated by the National Credit Regulator, while there is no monitoring body for Administrators. There is therefore the danger of less accountability, and greater difficulty in resolving problems and complaints for clients under Administration ;
  6. A good Debt Counsellor will also investigate other factors (such as Reckless Lending and Prescribed Debt), which could result in clients not being liable for certain debts.

We strongly believe that our National Credit Act has placed South Africa at the forefront of consumer credit protection world-wide. Even first-world countries (such as the U.K.) are only now waking up to the need for this type of legislation (to govern maximum interest rates, provide options for over-indebted consumers, etc.), whereas South Africa passed this Act eight years ago.