Debt counselling is a valuable financial rehabilitation process that has unfortunately been clouded by numerous historical myths and misconceptions. Thus, leading to confusion among those seeking debt relief. In reality, debt counselling offers several advantages that can greatly help individuals in repaying their existing debts and regaining control over their finances.

Myth 1: Debt Counselling Is Bad For My Credit Record

Contrary to common belief, debt counselling does not negatively impact your credit record. When an individual enters debt counselling, their credit record gets flagged to inform credit providers that the individual is currently undergoing the debt counselling process. Consequently, no new loans can be taken out, and existing lines of credit cannot be utilized during this period.

Debt counselling serves as a rehabilitation process, offering consumers the chance to repay their existing debts. The primary objective is to provide an opportunity for the consumer to pay and manage their debt in an affordable manner. Allowing individuals to take on new debt while under debt counselling would compromise the repayment process, potentially increasing the burden of debt and prolonging the process. 

After successfully completing the debt counselling process, the individual is granted a clearance certificate. This certificate serves as official documentation indicating that the individual has fulfilled their debt obligations. Both consumers and credit bureaus are notified of this settlement. Once the clearance certificate is issued, the credit bureau can remove the previously flagged status from the individual’s credit record.

Myth 2: I Will Never Have Access To Debt Again

As mentioned above, the flag can be removed from the consumer’s credit report once they have settled all their debt, besides their home loan if they have one. Having the flag removed is a positive outcome as it signifies that the person has taken responsibility for their debts, fulfilled their obligations, and is now in a better position to manage their finances moving forward. This is done through the issuing of a clearance certificate. This clearance also opens up opportunities for the individual to rebuild their credit history, regain financial stability or rejoin the credit market if she/he wishes to. 

Myth 3: Debt Counselling Is For People With Very Bad Debt Problems

Debt counselling is a highly beneficial process that has positively impacted the lives of hundreds of thousands of South Africans by effectively managing their debt and facilitating repayment to credit providers. The increasing demand for this service is evident, with over 15,000 applications for debt counselling submitted every month. This popularity can be attributed to the fact that many individuals find themselves over-indebted or struggling to cope with rising interest rates, making debt counselling an invaluable tool in regaining much-needed financial control.

One of the most significant advantages of debt counselling is the protection it offers to consumers facing financial difficulties. When individuals fall into arrears and credit providers pursue judgments or resort to debt collectors, debt counselling steps in as a mediator. This intermediary role shields the consumer from aggressive collection tactics and allows them to work towards a more manageable debt repayment plan.

Anyone that is struggling to repay their debts can benefit from a reduction in installments and interest rates. If a consumer is missing debt repayments or using new debt each month to make it through is likely to be over-indebted.

Myth 4: Debt Counselling Does Not Work

Choosing the right debt counsellor is essential to navigate the process easily and successfully. Prioritize spending time researching potential debt counsellors to ensure you make an informed decision. Here are some crucial factors to consider during your research:

Registration: Verify that the debt counsellor is registered with the National Credit Regulator (NCR). This ensures that they operate within the legal framework and adhere to the necessary regulations.

Compliance: Ensure the debt counsellor follows the guidelines of the DCRS (Debt Counsellors Rules Set) to guarantee the lowest installments and interest rates in order to get of debt in a timely manner. It also ensures that the credit providers recieve a proposal that they are likely to accept. 

Fees: Check if the debt counsellor charges appropriate fees as per the guidelines outlined in the National Credit Act. These need to be transparent and reasonable. If consistent payments are made during the process there should be no major issues and all parties will be satisfied.   Complications may arise if the individual misses payments due to there then being a breach of the new agreements. Missing payments can have a significant impact on the arrangements made with credit providers, potentially leading to further financial challenges.

Therefore, it’s essential to be diligent and proactive during debt counselling, staying committed to the agreed-upon payment plan to achieve the desired debt-free outcome. Regular communication with the debt counsellor and responsible financial behaviour are key to a successful debt rehabilitation journey.

Myth 5: You Have To Settle All Debt Before Being Cleared

When an individual enters the debt counselling process, certain types of debt, such as home loans, are treated differently. Home loans, with their longer repayment periods, are not required to be settled during debt counselling, but can be included in the process. This allows the individual to enjoy the added benefit of a reduced monthly installment and interest rate. 

The primary focus of debt counselling is on addressing and resolving unsecured debts; such as personal loans, credit cards, and other forms of credit that are not backed by collateral (assets). These unsecured debts are the main priority in the debt counselling process, while secured debts like home loans can continue to be managed according to their existing repayment terms once the individual has received their clearance certificate.