Disadvantages of Debt Counselling

If you’ve considered debt counselling, you’ve probably wondered what its drawbacks/disadvantages are. Truth be told, debt review has its disadvantages, just as any other debt help system does. For instance, you can’t apply for credit because of reckless lending legalities and the mark it leaves on your credit report. The process isn’t a short one, either, lasting anywhere from 3 to 5 years.

Let’s talk about the disadvantages of debt counselling, possible solutions, and how you can make the most out of your time in debt counselling.

Debt counselling drawbacks

Yes, debt review has its cons, but there are solutions you can employ to mitigate them, or at least reduce their impact on your finances.

Length of Debt Review

Debt review isn’t a quick fix. Depending on the negotiated terms and repayment capacity, debt review could last anywhere from 3-5 years. Of course, a longer repayment period means you’ll exit debt review later than you may have hoped initially and a shorter repayment term could make for a quicker exit than you had thought.

Solution

To expedite the debt review process, consider increasing your repayment capacity to make additional payments. You could do this by getting another job or side hustle or cutting out expenses in your budget you can afford to live without to make extra room for debt repayments.

You can’t apply for more credit

This is for your own protection. Any credit you are granted under debt review is not consolidated under your agreement with your debt counsellor, and you won’t enjoy the legal protection debt review offers. Additionally, lenders will be more than hesitant to grant you credit, because it is illegal. It’s referred to as reckless lending in the National Credit Act.

Solution

If you’re in dire need of finance, consider selling old electronics and other assets of value, getting another job, asking friends and family for help, or even pawning your car (proceed with caution).

Mark on your credit score

As soon as you apply for debt review, your name is entered into the Debt Help System, a database the NCR, creditors, and debt counsellors use to record who has undergone or is undergoing debt review. Debt review leaves a flag on your credit report that tells lenders not to lend you money for their and your protection, due to your propensity to default.

Solution

As soon as you’ve paid everyone back, you’ll get a clearance certificate from your debt counsellor you can use to dispute the debt review flag on your credit report with the bureaux. The flag will be off your record in as little as three weeks. From there, you can work on rebuilding your credit score.

Debt counselling offers you legal protection from judgments and legal action, the opportunity to enjoy reduced interest rates and lower debt repayments, and the expertise of a debt counsellor. Your debt counsellor will help you manage your budget and work with you to create a payment plan that allows you financial breathing room.

If you would like help getting out of debt from debt counselling experts, contact Debtco Group. We would love to help you on your way to financial agency.