Disadvantages of Debt Counselling

If you’ve considered the disadvantages of debt counselling, you’ve probably wondered what its drawbacks are. Truth be told, debt counselling 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 counselling has its disadvantages, 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 — one of the disadvantages of debt counselling.

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 and combat the disadvantages of debt counselling.

 

The real disadvantages of debt counselling, and how to weigh them

Debt counselling is a powerful tool, but it is not the right answer for everyone. Being honest about the drawbacks helps you make the right decision. Here are the genuine disadvantages to weigh up:

• You cannot take on new credit. While you are under debt review you may not open new accounts or use existing credit. This is deliberate, it is how the process helps you break the debt cycle, but it does require discipline.
• It takes time. Debt review is not a quick fix. Depending on what you owe, it commonly runs three to five years, though paying in extra when you can shortens the term.
• You are flagged at the credit bureaus. While under review your credit profile shows a debt review status. This is removed once you complete the process and receive your clearance certificate, it is a rehabilitation flag, not a permanent blacklisting.
• There are fees. Debt counselling carries fees, but these are set and capped by the National Credit Regulator and are the same across all registered debt counsellors. We explain them upfront before you commit. See what debt counselling costs for detail.
• You must stick to a budget. Your restructured plan is built around what you can afford, which means living within a set monthly budget until you are debt-free.

Why most people still choose it

For someone who is genuinely over-indebted, the alternative, falling further behind, facing legal action, or losing a home or car, is far worse. Debt review reduces your monthly repayments to an affordable amount, consolidates everything into one payment, stops creditor harassment, and legally protects your assets for as long as you keep to the plan. If you are comparing your options, our guide on how to compare debt review companies in South Africa is a good next read.

Is debt counselling right for you?

The honest answer is: it depends on your situation. If you are keeping up comfortably, you may not need it. If you are borrowing to cover repayments, missing instalments, or dreading the phone ringing, it is worth a proper look. Make sure you work with a properly registered provider, here is how to choose a registered debt counsellor. You can also read exactly how debt review works.

Frequently asked questions

Can I cancel debt review if my situation improves?
Yes, there is a process to exit debt review early, read about cancelling debt review and the risks.

Will I lose my house or car?
No, as long as you keep to your agreed plan, the assets included in your review are protected.

Not sure if it is worth it? Let us tell you honestly.

Debtco Group has guided South Africans through debt review since 2010, and we will tell you honestly whether it is right for you. Call a registered debt counsellor on 021 007 1422 or request your free, no-obligation assessment.