Debt counselling is an expensive route
DEBT counselling should be the last resort for debt-trapped consumers, says Mmadikwa Phoshoko, debt counsellor at legal insurance firm Legal and Tax.
WISE ADVICE:
Mmadikwa Phoshoko
STATUS:
The plastic with the magic touch has many people living beyond their means and leaves them with financial burden on repayments and interest.
The debt counselling process was introduced as part of the National Credit Act in 2007. The consumer applies to have their debt restructured so that they can pay household expenses - and still be able to pay off some debt at the end of the month.
Consumers use debt counselling because creditors are not allowed to take any legal action against the consumer while they are under debt review.
"It's a good option if you are really in a tight spot with debt and finances, but you should consider other ways of dealing with your debt before you enter the debt counselling process," says Phoshoko.
"One option is to ask your creditors to change your repayment terms."
Debt counselling has some disadvantages.
"Because it usually involves reducing your monthly payments on your debts, it will take longer for you to settle the amount you owe and you will pay more interest as well.
"Ultimately, you could spend up to seven years servicing a short-term debt, like a clothing account or a cash loan. If you are lucky, you may have creditors who will reduce their interest rates to help you, but don't count on it," she warns.
Another disadvantage is that debt counselling is not free.
"It will cost you up to a maximum of R6000. Debt counsellors also receive a 5% monthly aftercare fee, capped at R400," she says.
"Don't think of debt counselling as an easy way out - it is a tough process that demands commitment and sacrifice from you.
"You will have to show the court that you are serious about paying off the money you owe and making lifestyle changes ... like downgrading your car or giving up that DStv subscription."
Another disadvantage, she adds, is that while under debt counselling, you are unable to get more credit.
All debt counselling applications ends in court - this is to get a consent order for the new agreement.
"Creditors may not agree to the proposals made on behalf of the consumer, then an application will have to be made to a court to consider your financial circumstances and possibly force your creditors to accept less.
"Before you go the route of debt counselling, speak to your creditors and warn them you are battling to meet your obligations.
"If they are not willing to help, approach a counsellor," says Phoshoko. - penwelld@sowetan.co.za
Most Popular
-
No Viewed Articles yet
Comments
Bebesocs
Debt counselling service should not be stressful at all because it is a service to help when you are already stressed. The counselling service should be made known to consumers and the consumers must be encouraged to use it, this service should be non-governmental and should rely on the contributions of the partly government and must be basically a charity organisation, but to discourage people to use this service as a last resort is not encouraged because the aim is to be debt free so as to have a healthy society. Because of the nature of this service the people who work for this organisation should not expect or demand such big salary because its nature is counselling service a partly free service but it has its on criterias to assess who is fit to benefit on this service. The consumers need advise so the nation need to be informed... distribution of information.Report Abuse
Bebesocs
South Africa should be encouraged or South Africa should have organisations like for example CONSUMER CREDIT COUNSELLING SERVICE [CCCS] or for example NATIONWIDE COUNSELLING SERIVES [NCS] , these are just examples but at this rate we in south africa we need such service this is part of human rights.Report Abuse
DISAPPEARINGACT
As l.ong as th.is ment.ality of "mo.tho ke m.otho ka sk.oloto" per.sists, inko.mo isaz.odl'ibuns. Str.u's bo.p.Report Abuse
Dzel
Babesocs,Debt councilling is really, really bad news and as the article says it should be avoided at all costs not only because it serves as confirmation that one is incapable of handling their financial affairs but because of the length it will take to pay off the debt and associated costs.
What is needed is financial literacy, this needs to be done before the individual gets themselves into serious financial difficulty. One should not allow themselves to get to a position that your debts are almost equal to or exceed your income, these are the people who end up in debt councilling. Avoid in-store accounts especially for things like clothing which should be bought cash.
Report Abuse
Deepstick-C
I am on my 6th Credit card of up to R80K revolving balance...who"s up for a jol this coming weekend (snobs/Model C's with fake hairs & nails only)? I blow money fast, booze at fancy clubs in Rosebank & Sandton, fancy restaurants at Mandela Square Sandton, I wear Fabiani, 69 Belmont, Zara, Crossover back-to-back. Ke ja disnob tsa midrand le centurion...halla if you want my emailReport Abuse
Uncompromising
The National Credit Act (NCA) was not intended to have this situation as an outcome. The Act itself has been open to abuse because of its ambiguity and vagueness in certain areas. There should have been a balance break for people that can undergo the debt review/counselling process. What you have now is people sitting in houses worth millions, driving cars worth millions but undergoing the debt review/counselling process. The richer have abused the process to the detriment of the poor. Also, the purpose of the Act was to get some relieve from creditors, rebuild yourself and then re-enter the credit market again once you are up on your feet again.Report Abuse
swona
I went to my bank and said I want to consolidate, the idvice I got, and the money they wanted to give me? I insulted the consulted with her mother and left! I am a better person today!Report Abuse
24nevus04u
@swona- what exactly did you saybto her.kikikikikikikikikiIthink people are forced to go for debt counselling ngoba the creditors do not come with relief plan before threating them with repossesion and legal actions.Most of the people are harrassed by Nontoimbi calls until they go for counselling.
Report Abuse
Dikmol
I went to my bank and said I want to consolidate, the idvice I got, and the money they wanted to give me? I insulted the consulted with her mother and left! I am a better person today!=====================================================================
Kwakwawkaaaaaa tjotjotjooooo hahahahahahaaaaa..hehehehehehe.."still clutching my painful stomach". Swona o mpolaelang. Wa mo rwaka ka mmae..tltlltltl. I like the way you put it in english. I cant stop laughing.
But ya, those consultant sometimes talk nonsonso.
Report Abuse
tpaz
Debt counselling is BAD NEWS , avoid if you can. Your credit profile will reflect that you are under administration for 10 years. ImagineReport Abuse
Read all 15 comments