Residential

Debt counselling – one of the best options to protect your assets

Debt generic

Recent stats on the number of consumers who have fallen behind on their debt repayments on their homes make for difficult reading. It is now estimated that the number of home loan accounts that will fall into arrears will reach unprecedented heights.

Benay Sager, Chief Operating Officer at debt counsellors DebtBusters says that if you are struggling with your finances and you have fallen behind on paying for your home, there is no reason to feel ashamed.

Avoiding phone calls or ignoring letters of demand from lenders is a common reaction when people feel mired in debt, but it is not a solution” he says. “There are options, but it is important to act before you face the possibility of having your house repossessed.”

Debt counselling is one of these options and arguably one of the best options that allows you to not only retain your assets but to also secure better payment terms on them. It is an effective and well-regulated industry and it was introduced as part of the National Credit Act in 2007 by way of helping over-indebted or soon-to-be over-indebted consumers to repay what they owe through an affordable repayment plan.

If you are feeling trapped by debt or you are avoiding your creditors, you should get help. One of the cornerstones of debt counselling is that you can include your assets in the process. In fact, more than half of consumers who sign up to debt counselling do it to secure their assets.”

Here is how it works:

  1. A registered debt counsellor will do a financial assessment to determine how much you owe and whether debt counselling is a potential solution.
  2. If it is the solution, you will need to formally apply for debt counselling. The debt counsellor will inform all your creditors and credit bureaus that you have applied for, and are undergoing, debt counselling. Once they have all been informed, creditors deal with the debt counsellor rather than contacting you directly which should help ease some of the pressure.
  3. The debt counsellor then negotiates reduced monthly payments on all credit agreements that fall under the National Credit Act including your home loan. This is done within agreed industry parameters and what you can afford. In most cases, interest rates for home loans could be reduced to the repo rate plus 2% through renegotiation with lenders – this equates to 5.5% currently.
  4. Once the more affordable repayment rates are negotiated, the ‘rearranged debt’ is approved by the court or the National Consumer Tribunal. This confirms that the creditors have agreed to the rates and they cannot change them for the duration of the debt counselling.
  5. You will be required to make one affordable payment each month which will be distributed to the creditors via an independent payment distribution agency, also regulated by the National Credit Regulator.
  6. Reputable debt counsellors have a client-service team that is available throughout the process to offer you help and support.

Debt counselling usually lasts for between three to five years, depending on the amount of debt, the rates the debt counsellor can negotiate and what you can afford to pay.

Typically, on completion, the debt counsellor issues a clearance certificate confirming that your accounts listed in the agreement have been paid up. Home loans are the exception; these do not need to be fully paid but they must be up to date.