When expenses begin to outweigh income, it becomes all too easy to fall into a state of financial instability and when this happens, it can be a taxing and scary experience. As an over-indebted customer, it is important to understand that while your situation may appear bleak during this stressful time, there is help available to you.
With the help of the National Credit Act, we’ve seen the introduction of debt counselling; a useful method of financial rehabilitation. By creating debt repayment plans and assisting in negotiations and budgeting advice, a debt counsellor is able to assist in stabilising qualifying over-indebted consumers.
We sat down with Absa’s CRO: Debt Review and Customer Forbearance: Peter Mphahlele, National Manager; Muhammed Laher, and Head of Debt Review Customer Collections; Tej Desai, to discuss what you can expect if you ever find yourself in a situation where you’re undergoing financial rehab via debt counselling.
All three agreed that foremost, you will be expected to notify the bank and seek help the moment you realise that you may not be able to meet your payment obligations. People tend to wait until the very last moment, but our advisors stress the importance of early assistance. At this point, debt counselling can even be avoided altogether if the consumer’s credit provider is able to agree to a favourable repayment solution. If the consumer is unable to come to some kind of agreement with their creditor, Laher recommends finding a licensed counsellor through the National Credit Regulator and putting forward an application for debt counselling.
From there, it becomes a regulated process, where the debt counsellor will investigate your financial situation and income/expenditure ratio in order to determine if you are over-indebted and whether you have fallen victim to reckless lending – an act which can be taken to court.
If the debt counsellor determines that you aren’t in a position to fulfil your financial obligations, you will receive assistance in negotiating more favourable terms with your credit providers, allowing a smaller repayment over a longer term.
During this time, you will be expected to undergo a complete budget overhaul, removing expenses that do not directly serve your rehabilitation purposes. The debt counsellor will be able to assist you by offering advice and budgeting aid.
The debt counselling route can be an incredibly helpful last resort, but should not be entered into lightly. It requires a great deal of commitment and sacrifice and cannot be successful without significant effort. Customers must also understand the cost implications of debt counselling.
Peter emphasised the importance of customers being close to the process to ensure it’s finalised within 60 business days and also to ensure the new debt repayment terms are achievable and fully aligns with their debt rehabilitation journey. If this does not happen, customers will default again because of a mismatch between future income and new repayment terms.
Desai adds that it is vital that this is seen as a temporary solution for easing immediate financial strain. Ultimately, the aim is to become credit active again, free from bad debt.
If you have any additional queries about debt counselling, you can phone us on 086 122 2272 or go to http://www.absa.co.za
Interested to learn more about relieving your debt and maintaining a healthy credit record? Take a look at a few of our other blog posts on this topic.
- Know Your Affordability
- For the Record: Everything You Should Know About Your Credit Record
- What to do When You Fall Behind on Your Bond Repayments
- Shedding Light on Debt Counselling’s Lesser-known Predecessor, Forbearance
- Aftermath: Picking up the Pieces of Bad Debt
Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.