Debt counselling: 5 things you should know

We’re living in very difficult economic times, and that means that more people than ever are falling into debt. Weighed down by the amount of money they owe, many people are turning to debt counselling as a way of escaping the challenge of repaying their creditors. While debt counselling can be of use in some cases, it’s not the quick fix that many hope for and can, in fact, have serious repercussions. If you’re thinking about applying for debt counselling, it’s important to go in with your eyes wide open to the facts. Here are just five things you should know about debt counselling.

In This Guide:

It’s not a ‘get out of jail free card’

Some people wrongly assume that debt counselling means you can simply walk away from all the outstanding repayments you owe. In fact, the debt is still your responsibility. While negotiations with your creditors are ongoing, you need to keep up with the monthly repayments or risk the whole process being nullified. Failing to repay could mean you end up paying counselling fees which go to waste if proceedings are cancelled when you fall behind with your payments.

Some of your debts can be excluded

On the plus side, if you’re quick to apply for debt counselling then some of your debts can be excluded. If a credit provider had started to take legal action against you before you applied for debt counselling, then that debt can be excluded from your debt review. If you do decide that debt counselling is the right avenue for you to take, then it’s important to act quickly. The sooner you make a move, the sooner you know which debts you still need to repay and which you don’t.

You can’t access any more credit

Once you enter the debt counselling system, it’s worth remembering that you cannot apply for more credit from other lenders. Credit providers are barred from lending those receiving debt counselling any more money, unless it is a consolidation loan which is not going to incur yet more debt. If you have a mortgage to pay and were hoping for a loan to cover it, that won’t be possible. Until your debt counsellor issues you with a clearance certificate, there is no chance of borrowing any more money to cover your living expenses.

You could have recourse against reckless lenders

One benefit to debt counselling is that you may be able to escape a debt repayment if your counsellor can prove that the creditor was reckless in lending to you. This applies even if you’re not over-burdened with debt. If your counsellor thinks they can prove a creditor lent money recklessly, they can apply to the courts to have the debt annulled. It’s for the courts to decide whether money was loaned without due diligence, and if they find in your favour then that’s one less debt you’ll need to repay.

Not all debt counsellors are the same

If you do decide you’d like to pursue debt counselling, then you need to be very cautious in choosing your debt counsellor. It’s easy to find debt counsellors, but finding one who can actually achieve the outcomes you want might be harder than you think. Always shop around, because not all debt counselling services are the same. Word of mouth is a good place to start, and you should also check that they are fully registered and fit to carry out the work. It’s also worth checking how many years they have been in the business and any other qualifications they might have, such as being a practising solicitor. If there are any online reviews you can read, those should also help inform your final decision.

Ultimately, debt counselling can be a good way of reducing and managing your repayments, and escaping some altogether, but it’s not the right course of action for everyone. If things don’t run smoothly, you may in fact find yourself in a worse position and owing counselling fees on top of the outstanding repayments you still owe your creditors. Debt counselling can throw up some nasty surprises along the way, but it can also make repaying your debts seem more manageable. You need to weigh up the pros and cons carefully, before you make this very important decision.

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