Disadvantages of Debt Review: Pros and Cons
The fact that you’re searching for the disadvantages of debt counselling indicates that you’re considering the process. If you’re struggling to make ends meet, it’s a good idea to keep reading. In this article, we’ll delve deeper into the pros and cons of debt counselling.
What is Debt Counselling?
Firstly, debt counselling is one of the debt relief measures available in South Africa and is provided for in the National Credit Act. This process aims to assist over-indebted consumers who are struggling with debt by providing budget advice, negotiating with credit providers for reduced payments, and restructuring debts.
Advantages of Debt Counselling
1. Reduced Stress and Anxiety
One of the biggest benefits of debt counselling is the reduction of stress and anxiety that comes with managing debt. A debt counsellor can help you create a plan that is tailored to your specific financial situation, giving you a clear path to follow and easing the burden of constantly worrying about your debt.
2. Lower Monthly Payments
Through debt counselling, a debt counsellor can negotiate with your creditors to lower your monthly payments. We have had cases where credit providers have significantly reduced the interest rates.
3. Combining multiple debt instalments into one payment
If you have multiple debts, debt counselling can help you combine them into one monthly payment. This can simplify your debt management and make it easier to keep track of your payments.
4. Protection from Creditors
Once you enter into debt counselling, your creditors are legally required to stop contacting you for payment. This can provide a sense of relief and give you the space you need to focus on paying off your debt.
Disadvantages of Debt Counselling
1. Impact on Credit Score
Debt counselling can initially have a negative impact. This is because entering into debt counselling is seen as a form of insolvency and will be reflected on your credit report.
2. Limited Access to Credit
While in debt counselling, you will not be able to access new credit. This can be a disadvantage if you need to make a large purchase or have an emergency expense.
3. Potential for Increased Debt
If you do not stick to your debt counselling plan, you may end up with more debt than when you started. This is because interest and fees may continue to accumulate while you are in the program.
Read this article on how to make sure your debt does not increase while under debt review.
4. Credit Provider may proceed with legal action
If you fail to honour your debt review rehabilitation order and miss payments, credit providers have the right to terminate your debt review and take legal action.
Is Debt Counselling Right for You?
Debt counselling can be a helpful tool for managing and reducing debt. Here are some factors to consider when deciding if debt counselling is the best option for you.
Pros of Debt Counselling
- Do you feel overwhelmed and stressed by your debt?
- Are you struggling to make your monthly payments?
- Do you have multiple debts with high interest rates?
- Are you looking for a way to simplify your debt management?
If you answered yes to any of these questions, debt counselling may be a good option for you.
Cons of Debt Counselling
- Do you need access to new credit in the near future?
- Are you able to stick to a budget and payment plan?
If you answered yes to any of these questions, debt counselling may not be the best choice for you.
Alternatives to Debt Counselling
If debt counselling is not the right option for you, there are other alternatives to consider. These include:
Debt Consolidation
Debt consolidation involves taking out a loan to pay off all of your existing debts. This can simplify your debt management and potentially lower your interest rates. However, you will still need to make monthly payments and may end up with a longer repayment period. Using new debt to pay off old debt is not a wise decision.
Administration
Administration is a debt resolution method that entails lowering a client’s monthly instalments. Unlike debt review, in administration, a credit provider receives debt repayments once every three months. While this legal process extends the terms of debt repayment, it is a more prolonged and time-consuming procedure compared to debt review.
Sequestration
Sequestration is a debt resolution method that involves selling an individual’s assets to pay or diminish their existing debt. In this process, the court appoints someone to oversee the client’s finances, making it a more costly procedure.
Good to know
Administration Orders and Sequestrations – A sequestration order is when someone is declared insolvent, or unable to pay. It stays on your credit report for five years or until a rehabilitation order is granted.
Why is it Important to Choose a Registered Debt Counsellor?
Choosing a registered debt counsellor is crucial for several reasons. First and foremost, registered debt counsellors are held to a higher standard of ethics and professionalism. They are required to follow strict guidelines and regulations set by the National Credit Regulator (NCR). This means that they are more likely to provide you with accurate and reliable advice.
Additionally, registered debt counsellors have undergone extensive training and have the necessary qualifications to provide debt counselling services. They are also required to undergo regular training and development to stay up-to-date with industry changes and best practices.
Finding a Reputable Debt Counsellor
If you have decided that debt counselling is the right option for you, it is important to find a reputable debt counsellor to work with. Here are some tips for finding a trustworthy debt counsellor:
Look for a debt counsellor who is accredited by the National Credit Regulator (NCR). We have created an article on how to verify if your debt counsellor is eligible.
When it comes to seeking assistance, a call centre, also known as Company, may not be the optimal choice. The main reason for this is that each time you reach out with a query, you’ll be interacting with a call agent, lacking that personal touch. It would be more beneficial to consider consulting a debt counsellor who can provide face-to-face meetings. Additionally, it’s important to thoroughly review their online feedback on platforms such as their Google business profile and social media.
Make sure the debt counsellor is transparent about their fees and services. Fees are regulated by the National Credit Regulator. The NCR debt counselling fee guideline is obtainable from www.ncr.org.za , alternatively by calling the NCR contact centre on 0860 627 627.
If a debt counsellor advertises a reduction in debt of more than 60%, please be aware that, according to the National Credit Regulator, it is not permissible for a debt counsellor to advertise false information.
Trust your instincts and choose an experienced well seasoned debt counsellor who makes you feel comfortable and confident in their abilities.
How to Check if Your Debt Counsellor is Registered
The first step in ensuring your debt counsellor is registered is to ask for their registration number. This number should be provided to you upon your first consultation. You can then verify their registration by visiting the NCR’s website and entering their registration number in the search bar. This will provide you with their registration status and any disciplinary actions taken against them.
You can also ask for references or read reviews from previous clients to get a better understanding of their services and reputation. It’s important to do your research and choose a debt counsellor that you feel comfortable and confident working with.
The Benefits of Working with a Registered Debt Counsellor
Working with a registered debt counsellor can provide you with peace of mind and empower you in your journey towards financial freedom. By choosing a registered debt counsellor, you can trust that you are receiving accurate and reliable advice from a qualified professional. This can help you make better financial decisions and ultimately achieve your goal of becoming debt-free.
Final Thoughts
Debt counselling can be a helpful tool for managing and reducing debt, but it is not always the right choice for everyone. It is important to carefully consider the pros and cons and explore alternative options before making a decision. By finding a reputable debt counsellor and creating a solid plan, you can take control of your debt and work towards a more financially stable future.
If you would like to speak to a debt counsellor, you can book an appointment online with Bernidene Thieroff. She is a reputable debt counsellor and has years of experience.
