Is Debt Counselling Free?
Is Debt Counselling Free?
Debt Counsellors charge a professional fee at the very start of the debt counselling (or debt review) process and then a monthly retainer fee (called an aftercare fee). These fees form part of the monthly debt review payment and are not paid upfront before the process starts. There are no government regulated or published fees but the National Credit Regulator (NCR) has periodically published recommended rates that most practices use.
Do Debt Counsellors Work For Free?
Debt Counsellors are trained professionals who offer a ‘paid for’ professional service. Much like lawyers or doctors, they charge for their time and services. As specialists, who know how best to help consumers deal with debt, the (small) fees are well worth it for the level of assistance consumers receive.
How Much Will Debt Counselling Cost?
No Set Fees: At present, there is no set fee structure published in any government gazette or in the National Credit Act and Regulations.
Industry Norms: Over the years, debt counselling associations and the National Credit Regulator (NCR) have published guidelines that most Debt Counsellors stick to voluntarily.
There are traditionally two aspects to professional fees paid to the Debt Counsellor:
- An Initial Restructuring Fee (once off)
- A Monthly After Care Fee (monthly)
What Is The Initial Once Off Restructuring Fee?
When a consumer enters debt review with a Debt Counsellor they will be helped to adjust their monthly budget to free up as much money as is reasonable and sustainable to pay towards their debt each month.
The initial Restructuring Fee covers:
- The efforts of the Debt Counsellor in gathering information;
- Helping the consumer adjust their budget;
- Contacting all credit providers to notify them that the consumer has entered debt review and is receiving debt counselling;
- Gathering information from all credit providers
- Considering Reckless lending if asked;
- Making proposals to credit providers and the consumer on how the debt could best be settled;
- Beginning parts of the legal process (which happens with the help of attorneys via court).
The initial fee is made up of some smaller subdivisions namely: the Application Fee, Administration Fee, Determination Fee, Restructuring Fee and possibly the Reckless Lending fee.
Once the Debt Counsellor knows how much the consumer can realistically pay toward their debts each month they will organise for the consumer to begin paying that amount (normally via a Payment Distribution Agent).
FIND OUT MORE ABOUT PDAs HERE: What is a PDA?
Out of the first adjusted payment that the consumer makes at the end of their first month of debt counselling, a portion of the payment will be set aside for the Debt Counsellor. If the amount is smaller than the industry ‘norm’ then all those funds may be allocated to the Debt Counsellor. If the amount paid is more than this figure then, the Debt Counsellor gets their payment and the balance of the payment is paid over to the credit providers.
What Are The Monthly Fees?
Debt Counsellors are paid a type of small monthly retainer fee called an After Care Fee. This fee also comes out of the consumers monthly debt repayment and the credit providers factor it into their calculations as well.
The monthly After Care Fees cover things such as:
- Ongoing assistance and advice;
- Assisting with payment queries;
- Reviewing the consumer’s ability to pay the agreed amount from time to time;
- Assisting at the end of the process with a clearance certificate
What Are The Industry ‘Norms’ For An Average Consumer?
Each consumer’s situation is unique and so the fees they pay will be unique to them. However, if you consider everyone who enters debt counselling it is possible to get a broad view of what an average consumer, in the process, is paying.
The Initial Restructuring Fee can be between R1 and R8000 (the maximum). Whatever they end up paying towards their debts on month one of the process will determine this amount. So, if you can realistically afford to pay R1000/month towards your debt then this will be your restructuring fee once off. If you can pay R4000/month then your restructuring fee would be R4000. The fee is capped at R8000. This means that those who can only afford to pay less towards their debt pay less in fees.
Most Average consumers* pay around +-R2500 once off.
The Monthly After Care Fees are normally 5% of your monthly payment starting at R1 and being capped at R450/month (the maximum).
Most Average consumers* pay around +- R125/month.
Remember though it depends on what each unique consumer ends up being able to pay toward their debt realistically and consistently.
Debt Counselling Is Not Free But It Is Worth It!
Stress Relief: For most people entering the process, there will be a huge relief as credit providers stop pressuring them for payments they cannot realistically afford.
Advice: They will also benefit from advice from their Debt Counsellor on how to better spend the money they do have each month.
Savings: Since most credit providers drop monthly fees and charges on the consumer’s debts and in most cases drastically reduce interest rates on the debt it is common for consumers to actually save a massive amount of money over time that would otherwise go towards those costs. The credit providers really try to help them get out of debt as fast as possible.
‘This means that the small fees that are allocated to the professional services of their Debt Counsellor quickly fade into insignificance by comparison’
This means that the small fees that are allocated to the professional services of their Debt Counsellor quickly fade into insignificance by comparison.
For example, if the consumer has 7 accounts that used to have monthly account fees of +-R60 each (R420) that now, in debt review, no longer charge those fees, they will be very happy to pay their Debt Counsellor a small monthly amount (eg. R125 each month) in After Care Fees.
Each Person’s Fees Differ Based On Their Situation
None of the fees you pay are paid upfront before work has been done. The fees form part of what the Debt Counsellor proposes can realistically and consistently be paid toward all the consumer’s debt each month. Credit providers are aware of the professional fees and work it into their own calculations.
FIND OUT MORE HERE: How to find a Good Debt Counsellor
Unique: Remember that you are not average. You are special and unique. If you talk to a Debt Counsellor about maybe starting the process they can normally give you a rough idea of the fees you will probably pay, based on your figures, pretty quickly. Please note that the final figure, while similar, might be slightly different depending on what you end up paying towards your debt each month and what the court orders.