Beware the snare of unethical debt counsellors
No shortcuts for relief
As interst rates continue to rise, increasing the burden of debt on consumers, the National Debt Counsellors’ Association (NDCA) has cautioned about the importance of choosing professional counsellors for guidance.
Last week, the SA Reserve Bank raised interest rates by 75 basis points, meaning consumers will pay more to service debt such as credit cards, car, home, and personal loans, among other things.
More South Africans find themselves deeper in debt and many have to resort to acquiring the expertise of debt counsellors to cope with their shrinking pockets.
Unfortunately, out of desperation many consumers fall prey to dubious debt counsellors, whose main goal is to make profits by getting as many customers as possible.
In many instances, unscrupulous counsellors would rather sell their clients the idea of paying less for consolidated debt than telling them about the challenges and realities of being under debt review.
Many apply for a review and are not told that they will not be able to take any credit for a period of between three and five years while under review.
Thami Jokia, 46, of Vosloorus on the East Rand, thought he was making a sound decision for himself and his family when he decided to go into debt review in 2016. He had been working as a driver for a Johannesburg wine company earning about R7,000 a month, while his wife was unemployed at the time.
He had two bank loans of R10,000 each, furniture and clothing accounts, school fees for his three children and other expenses, which his salary could not cover.
“In 2016, I started discussing with my wife the option of debt counselling so that we can have my debt consolidated so I can pay less for all my debt. I then signed up with a random company I had picked up in the Johannesburg CBD.
“I had been paying R4,000 to service my monthly debt and I would be left with R3,000 for food and transport and that was it. I was broke and the debt counsellor told me that he could consolidate my debt and I’d pay R2,400 for five years. I fell for it,” said Jokia. He said he got the shock of his life when he realised two months later that the counsellor was paying the creditors less than what was agreed on.
“Some of them were not paid and I started getting calls from them. Basically, the counsellor was debiting my bank account and either paying less to my creditors or not paying at all. I’m still trying to have my name removed from the debt review,” said Jokia.
NDCA chairperson Benay Sager concedes that some debt counselling firms are not playing by the book.
He said consumers first needed to check whether their prospective councillors are registered with the National Credit Regulator (NCR) before they sign up. All credible counsellors are regulated by the NCR.
Some of the important factors to bear in mind when selecting a debt counsellor:
Do they use the Debt Counselling Rule Set (DCRS) when restructuring debt?
The DCRS system is the industry gold standard and benefits consumers and creditors alike. It allows unsecured debt to be repaid as quickly as possible and allows creditors certainty about the timeline. In some cases, interest rates can be reduced to 0% for unsecured credit such as credit card debt, personal loans and retail loans (depending on the size of debt and ability to repay). Insisting on a debt counsellor who uses the DCRS ensures you will repay your debt as quickly as possible and will also ensure acceptance of your restructured debt proposal by the creditors.
Are they able to explain the process and support you through it?
A good debt counsellor should be able to clearly explain the process and answer any questions or concerns you may have. They must manage your expectations and those of the creditors.
They should also have sufficient resources to be able to provide advice and support throughout the process and even help you with budgeting after you have received your clearance certificate.
Have they thoroughly assessed your financial situation?
Be wary of anyone who suggests an outcome or repayment plan to encourage you to sign up for debt counselling before they have done a full assessment. Even a basic assessment should include information such as your marital status, income, debt obligations and living expenses.
Good debt counsellors will do a thorough financial assessment; looking at all aspects of your finances and ability to repay your debt. They can then recommend a repayment plan best suited for you.