How long will it take me to pay off all of my debts? Does debt counselling take long to complete? One of the first worries that debt-leden consumers have is the payback period. In the back of one’s mind there is a countdown until a loan or credit card is paid off. Unfortunately, loans pile up and the debt starts to grow out of control. This is a common problem in South Africa – with almost half of all credit-active consumer being in arrears on one or more accounts. Many consumers are over-indebted and have over-exposed themselves to credit.
What Are The Different Types Of Debt?
Loans vary in size, term and type. Secured loans include loans for homes and vehicles. Unsecured debt includes personal loans, short-term loans, credit cards, store cards, overdrafts, petrol cards and a few others. Home loans are usually for 20-25 years whereas vehicles are for shorter periods of 60-72 months. Unsecured loans can be for as little as one day to as long as 60 months.
Typically, shorter term loans have higher interest rates. Also, smaller loans generally have higher fees relative to the loan size, due to fee caps. Interest rate caps are also much higher for short terms loans. Credit cards and other types of credit facilities are revolving, meaning that they are active as long as they are being utilised.
What Is Debt Counselling?
Debt counselling is a process that was designed for over-indebted South Africans. It was introduced into the National Credit Act (NCA) in 2007. Debt counselling is governed by the National Credit Regulator (NCR). A registered debt counsellor is the party that offers debt counselling as a debt solution for consumers. The process involves the formal negotiation between debt counsellor and credit providers, on behalf of the client. The debt counsellor negotiates for lower instalments and interest rates which is achieved by stretching out the terms of the debts.
The clients debts are not paid off or replaced up-front. The same debts remain but they now exist with new terms. Debt counsellors are mandated to negotiate these new, better rates to assist the over-indebted client. The debt counsellor works out a new payment plan which makes payments much easier to handle. Instead of having 8 or 9 credit providers to pay each month, the client will have one, simple, affordable repayment.
How Long Does The Debt Counselling Process Take?
There are a lot of moving parts involved in each debt counselling case. Debt counselling usually lasts for 36-60 months, depending on the clients financial position and the composition of their debts. The process is usually completed once the short-term unsecured debt has been paid off. If clients are able to pay more, using bonuses or increases, they can easily decrease the term of the process.
Once all of the debt have been repaid, the client is handed a clearance certificate which states that they are debt free. Their credit report will also be updated and restored. The debt counselling flag is removed from the credit report and there is no indication of the process. The flag on the credit report during the process is to prevent clients from taking out any more debt. If you are over-indebted you should not be taking out more debt in any instance.
What Happens To A Home Loans And Vehicles Under Debt Counselling?
Home loans and vehicle loans are included in the debt counselling process. They form part of the new payment plan and receive monthly payments under the process. Because these types of credit agreements have a longer term, they are treated slightly differently. If the home loan has not been paid up in the 60 month period, it will revert back to its original terms once the client has exited the debt counselling process.
Once the short term debt has been paid off and the client has exited the process, they should be able to contribute more towards the home loan and perhaps pay it off quicker.
What Are The Benefits Of Debt Counselling?
- One lower, affordable monthly debt repayments
- Saves the client money due to interest rate and fee reduction
- Prevents creditors from harassing the client
- Prevents creditors from initiating legal action against the client
- Save the client’s home and vehicle from repossession
- Client can become debt free in 36-60 months
- Simple payment plan
- Clean up the client’s credit report
- Clearance certificate issued once process complete
Make sure that you contact a reputable, registered debt counsellor for advice. Although the process might seem daunting at first, the peace of mind it provides is well worth it. A debt counsellor will only recommend this process if you qualify and if it will assist you to become debt free.