Straight Talk with Debt Counsellors
Understanding
Debt Counselling
In about April 2010, an article in the Business Report of the Cape Times caught my eye. Someone together with their debt counsellors at Debt Smart had sued ABSA bank for reckless lending and won. Their bond was set aside by the court! As a result, I became very curious about debt counselling, reckless lending and the National Credit Act. So I did some impromptu research for fun. I called around a few debt counsellors like DebtBusters. I eventually found a really good debt counsellor who was willing to spend 30 minutes on the phone sharing her knowledge.Here are some of the facts I found out about debt counselling and debt review.
Interview with a Debt Counsellor
Who Is Eligible For Debt Counselling?
If you cannot afford your debts (usually your mortgage bond plus other accounts and credit) you are eligible for debt counselling.
When Should You Apply For Debt Counselling?
If you have missed a payment on your mortgage bond, and the bank is threatening to foreclose, if you IMMEDIATELY apply for debt counselling, this will halt the foreclosure process.
What Happens If You Qualify for Debt Counselling
If you qualify for debt counselling, then your bank or lender is more or less obliged to cut you a deal. The bank will usually reduce your interest rate or extend the payment period on your loan to make the monthly payment more affordable. Other options that are explored would be debt consolidation. If you have a lot of credit card debt, which is usually at a high interest rate, then debt consolidation can help you tremendously.
Debt Review Via The Court System
If the bank doesn't cooperate then your debt counsellors can take the whole thing to court, where the judge will work out a way for your payment to be affordable.
How Low Can Your Bond Interest Rate Go?
If your payment is totally unaffordable to the point that extending the terms of your loan and reducing your interest rate to prime minus two (what I always thought was roughly the maximum that the bank would go, without them actually making a loss on the loan), then the court has the power to force the bank to reduce the interest rate of your bond to a point where the bond is affordable. The difference in payment between your original interest rate and the new rate is NOT re-capitalized onto the loan. It is a genuine cut in interest rate.
Debt Consolidation
Once you are under debt review, all your debts will be consolidated (debt consolidation) and combined into one payment which will be taken from your account every month and distributed by a "payment house" to the various creditors.
Missed Bond Payment Whilst In Debt Review
If you miss a payment whilst under debt review, the bank can immediately foreclose and other creditors can legally come after you for their money.
What Happens to Your Existing Assets
When under debt review and going through the court process, the courts cannot make you sell assets to pay for your debts ie if you have a holiday home which is paid off, you can't be forced to sell it to help pay off your debt.
Bank Accounts Get Frozen
When under debt review, your bank accounts will be frozen at the banks where you have debt. Before you start the debt counselling process, you must open a savings account at a bank where you don't have debt and transfer enough money into it to see you through until the judgment comes from the court.
Credit Record
You will get a comment on your credit record saying that you are under debt review.
When You Can Exit Debt Review
You stay in debt review until the debt is cleared OR until you are in a sufficiently sound financial position to be able to request exiting from debt review. Once you have exited the debt review process, you are no longer protected in the event that you can't afford payment of your debt.
Credit Record After Debt Review
Once you leave debt review, the fact that you were in debt review is removed from your credit record entirely. People will not be able to see that you were ever in debt review.
Choose the Right Debt Counsellor
From calling around and asking questions, I realised that it is vital to select a competent debt counsellor if you need debt counselling. There were many counsellors who couldn't even understand my questions and didn't really have a clue!
If you read the Act and Regulations governing who can become a debt counsellor and what the qualifications are, then you will realise that it is not hard to become a debt counsellor, so you do get a lot of people out there who are not the brightest, doing this kind of work. Choose your debt counsellors very, very carefully.
You will also see if you look at Hellopeter.com that there are a lot of problems with debt counsellors. Be warned!!!
Getting Expert Help
If you still have unanswered questions then I would highly recommend that you speak to a professional. Even if you already have a debt counsellor, this doesn't mean that you have the BEST debt counsellor. Second opinions are never a bad thing. You can email me and I will point you in the right direction.
Have You Had A Bad Experience with Debt Counselling?
Mail me your story, and I will see who I can get to help you out. I promise that I will keep your particulars completely confidential. If you really want to be anonymous, you can mail me from an anonymous email account which you can sign up for at google, yahoo or any of a myriad services.
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Straight Talk with a Debt Counsellor
What you never knew about debt review and debt counselling.
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