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What Is Debt Counseling?
Francisco Lakay
Debt counseling is the service offered by a counselor to consumers who are over-indebted due to financial mismanagement, untimely retrenchments, or any other reason. It helps you to get out of the trap, thereby taking control of your personal finances again. A counselor or advisor is a person or company registered with the National Credit Regulator (NCR in South Africa), who assists people with debt-related problems, providing them with budgeting advice and act as mediator with the credit providers to whom the outstanding is owed. Over-indebtedness is defined as the predicament where your expenses and exceed your income each month; i.e. you earn less than you can pay, thereby spiraling into greater without even acquiring any new debt.
Lifestyle debt, which has taken on massive proportions over the last eight years, has been the one major reason for over-indebtedness. People would tend to buy lifestyle products, such as the latest technological gadgets, rather than to invest for the future. Now in the midst of a recession consumers struggle to meet their monthly expenses, due to a higher cost of living.
Debt counseling is not a way to escape your repayment responsibilities, as some consumers mistakenly stop making payments to their credit providers after applying for the review process. Once you applied for counseling, the counselor notifies all the credit providers and the credit bureau within 5 days. You also will not have access to any more credit until all your has been paid in full. At this point in time the counselor would issue you a clearance certificate stating that your has been paid in full. You would now be able to start applying for credit again, bearing in mind your previous encounter with over-indebtedness.
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