Pros and cons of debt counselling
If you've found yourself deep in debt and are struggling to pay it back, it's probably crossed your mind that debt counselling might help. It's true that many borrowers find debt counselling a useful tool which helps them get their finances back on track. However, debt counselling does come with its own set of drawbacks, which need to be carefully considered before making a decision. Here's a detailed look at what debt counselling is, as well as its pros and cons, to help you make your mind up about whether debt counselling is the right path for you.
In This Guide:
- What is debt counselling?
- Debt counselling: Pros
- Debt counselling: Cons
- Should I choose to see a debt counsellor?
What is debt counselling?
If you find yourself over-indebted, or otherwise unable to repay all of your financial obligations on time, then one of the options available to you will be to consult a registered debt counsellor. Your debt counsellor will give you advice, help you to negotiate the terms of your repayments and restructure your debts. Consulting a debt counsellor can often make repaying your debts easier, but there are also caveats to consider.
Debt counselling: Pros
- When you're undergoing debt counselling, your creditors cannot take action against you. Your debt counsellor will determine whether you are or are not 'over-indebted', and if you are, you will remain under the safeguards of debt review until you have repaid all of your debts.
- The fact that you underwent debt counselling will not be on any kind of permanent record.
- Your debt counsellor will negotiate on your behalf to ensure you only need to make a single monthly repayment to a payment distribution agency, who will, in turn, pay all of your creditors. This keeps your payments simple and easy to keep track of, and means you will no longer be fending off creditors.
- They will check that you can meet your basic monthly needs before you start paying your debts. This should cover bills, school fees, food, transport, and other necessities, which means that you will never be expected to pay back more than you can afford.
- By undergoing debt counselling, you will no longer get calls from creditors asking for payment.
- Debt counsellors can offer financial and budgeting advice, and help you to cut your monthly costs in order to make repayments. This advice can prove useful in helping you to stay out of debt once you have paid off all of your current debts, too.
Debt counselling: Cons
- You are not allowed to take on more credit while you are in debt counselling. This means that if you're already really struggling, you might find it difficult to get by without taking out further credit - though, of course, it's better to try not to do this anyway.
- Debt counselling does cost money, which is understandably an unhappy prospect for people who are already in debt. The fees for debt counselling are set by law, which means that they should remain reasonable and debt counsellors cannot overcharge you.
- It's possible to undergo debt counselling and be found to not qualify. In other words, your debt counsellor could say that you are not actually over-indebted, and could pay off your current debts without renegotiating them first.
- Debt counselling might not always cover all of your debt. If you've already defaulted with one creditor, and they've started legal procedures against you, this debt will not be covered by the debt review process, and you will need to carry on paying what you owe on this debt separately.
- Your debt counsellor will notify credit bureaus nationwide once you are officially under debt counselling.
Should I choose to see a debt counsellor?
If you are over-indebted, your choices are to either consolidate your debt into a single loan or to see a debt counsellor. Which of these two processes will work best for you will depend greatly on your circumstances and your ability to pay your debts, as well as your own preferences. Ultimately, getting yourself out of debt is as much about revising your spending habits and improving your budgeting skills in the long term as it is about paying off your debts. Debt counsellors provide a very useful service to help with the latter, but it's not one that comes without downsides.