21 Jun Types of Debt Help Systems

Posted at 10:07h in Latest News by

If you’re in too much debt, you’ve likely considered enlisting outside help, like a debt counsellor, financial advisor, legal consultant, or refinancing service. The trouble is, how does one decide on the service they should use? This post is your handy guide to deciding what debt help system you should use.

In South Africa, the most used debt help systems are:

  • Debt review/ counselling
  • Debt consolidation/ refinancing
  • Creditor negotiation with an attorney or alone

Read on to learn about each service’s pros and cons, process, and ideal user.

Debt counselling

Debt counselling, also known as debt review or debt clearance, is a legal process where you use the help of a debt counsellor. The debt counsellor negotiates with creditors and lenders on your behalf to secure lower interest rates, and sometimes reduced (or even written-off) debt payments.

It’s a court-approved process that consolidates your debt– rolls it into one ball– so you can make one payment each month. Usually, a payment distribution service is used that distributes your payments between each creditor.

How does it work?

First, you’ll need to find a debt counsellor. You should always check debt counsellor registration on the National Credit Regulator’s (NCR’s) website.

Always check your debt counsellor is NCR-approved.

True North’s Debt counsellor is called Rynier Bernado.

After you’ve checked your debt counsellor of choice is reputable, ask them for a Form 16. They will ask you for a comprehensive list of income sources, debts, and bills, which they’ll use to assess whether you’re over-indebted. The debt counsellor will submit Form 17.1, and if they agree that you’re overindebted, submit Form 17.2.

Then, the debt counsellor will negotiate with creditors to reduce your debt expenses. You’ll pay a reduced amount on debt and interest over 3 to 5 years. When you’re all paid up, you’ll receive a clearance certificate that you can submit to the credit bureaus. The bureaus will then wipe all records of debt off your credit report.

Debt review is great for people who need protection from legal action. Creditors and collectors can’t sue you once you’re under debt review. It’s also fantastic for people who need extra room in their budget.

Debt review is not great for people who need an easy way out. The process can take anywhere from 3 to 5 years, depending on how large your unpaid balance is.

Debt consolidation

Debt consolidation is a personal loan taken out to pay all your debts at once. These loans are sold with the promise that they have lower interest rates and lower monthly repayments.

Consolidation loans are best for those who can still afford minimum monthly repayments and have a credit score that’s high enough to secure them good loan terms. Otherwise, expect high interest alongside the longer repayments.

Debt refinancing is not for people who have bad credit scores or can’t afford to make payments on their debt.

Creditor negotiation

This is where you negotiate with creditors for lower interest or reduced payments yourself. Most legal professionals do not advise this because of the high likelihood of a flat-out “no.”

Instead, you should let a professional help you with this, like a debt counsellor. Debt counsellors can help you budget, negotiate on your behalf, and offer you legal protection.

If you would like to receive debt counselling, contact us or use our handy debt review calculator to see how much you could save every month.