What are the advantages and disadvantages of debt counselling?

What are the advantages and disadvantages of debt counselling?

The National Credit Act (NCA) of 2005 introduced debt counselling to help consumers struggling with debt. At Simunye Debt Advisory, we’ve helped many people become debt-free through debt counselling. When you’re deep in debt, the benefits of debt review often outweigh the drawbacks. Let’s explore the advantages of debt counselling.

What Are the Advantages of Debt Counselling?

I’m glad you asked! If you’re considering debt counselling, it’s important to understand the benefits before signing up. Here are some key advantages:

Improved Money Habits

One of the biggest benefits of debt counselling is learning to manage your money better. Since you won’t have access to credit, you’ll need to use your income to cover expenses without borrowing. This teaches you to use cash for purchases and spend less, setting you on the path to building wealth without debt.

Flexibility

Debt review is flexible. If you win the lottery or come into some money, you can pay off your debt or increase your monthly payments. This means you can make lower payments when times are tough and higher payments when things improve, helping you exit debt review faster.

No New Credit

While under debt counselling, you can’t apply for new credit. This is actually a good thing because it helps you focus on eliminating debt rather than accumulating more. Once you’ve paid off your debt, you’ll receive a clearance certificate, and your credit bureau listing will be lifted, allowing you to apply for new credit.

No Permanent Record

Credit bureaus don’t keep a permanent record of your debt counselling. Once you receive your clearance certificate, your record is cleared. According to the NCA, a debt counselling order appears on your credit report only until a clearance certificate is issued.

Asset Protection

Your assets are protected while under debt review. The debt counsellor will obtain a court order to make the restructuring plan binding, preventing repossession by credit providers, lawyers, or debt collectors.

Reduced Interest Rates

The restructuring plan includes negotiating lower interest rates with credit providers. This can save you money on previously higher interest rates and charges. For example, interest rates for credit cards and personal loans can be reduced to 3-5%.

Single Monthly Payment

Debt counselling consolidates your debt into one manageable monthly payment. This convenience makes it easier to keep track of your payments.

No More Collection Calls

Once you’re under debt counselling, all collection activity stops. You won’t receive calls from credit providers or lawyers demanding payment.

Affordable Fees

Fees for debt counselling are set by law and included in your repayment plan, making the program affordable.

What Are the Disadvantages of Debt Counselling?

There are some drawbacks to debt counselling, but they are often outweighed by the benefits:

  • You can’t enter new credit agreements while under debt review. This helps you focus on eliminating debt.
  • Missing monthly payments can lead to termination of the debt review and legal action.
  • Not all accounts can be included in debt review, such as those with judgments.
  • You can’t withdraw from debt counselling once a court order is obtained.
  • If you’re married in community of property (COP), both partners must apply.
  • It may take longer to pay off your debt due to lower monthly payments, but increasing payments when possible can help you exit debt review sooner.
  • Legal fees vary but are included in the repayment plan.

If you’re deep in debt, the advantages of debt counselling usually outweigh the disadvantages.

What are the advantages and disadvantages of debt counselling?

Take back control of your finances?

Let us call you back.








    Scroll to top