There seems to be mainstream confusion around this question, with most debt counsellors telling consumers that it’s pretty much one and the same thing, and well, even though there is truth to that, it’s not true in its entirety…

That sounds pretty contradictory, doesn’t it… So what do I mean exactly?

Let’s say a consumer contact a ‘Debt Counsellor’ because they have a financial problem specifically relating to debt. The ‘Debt Counsellor’ has a first consultation with the consumer and assesses the problem by getting a bit of context and then does what we call an ‘over-indebtedness assessment’.

This assessment will indicate whether the consumer is or is not in fact, over-indebted.

Regarding the consumer’s situation, the ‘Debt Counsellor’ will enquire where the consumer came from, where they are now and more importantly, how they got to be in this position in the first place (them struggling with debt that is).

As you can imagine, in our current economic environment, a considerable percentage of assessments have the same outcome in terms of the result or cause for the consumer being over-indebted… Which is, yep, you guessed it… Covid19.

So, after building a bit of rapport (getting to know the consumer or potential client and making them feel comfortable) the DC then gets down to business by looking at the numbers. Here the DC will look at the consumer’s income vs expenses vs monthly debt obligations. This gives the DC a clear snapshot of the consumer’s current financial state.

The DC then assesses, based on the consumer’s financial situation, what is the best way forward for the consumer. E.g. If the consumer has quite a lot of secured and unsecured debt. The consumer is most likely a candidate for ‘Formal Debt Review’, however, if the consumer only has unsecured debt, and not that much, in particular, less than R50k, other forms of debt management mechanisms or vehicles will be applicable to the consumer.

This process above ladies and gentlemen is called… ‘Debt Counselling’!!

With reference to the abovementioned consumer, let’s say for argument’s sake that he/she has a house and car, along with a lot of ‘unsecured debt’. This consumer is definitely a candidate for ‘Formal Debt Review’.

Formal Debt Review is the process where we actually restructure and renegotiate the consumer’s credit agreements (contracts). The process of decreasing the interest on those specific accounts and extending the repayment term of the contracts. The aim here is to drastically reduce the consumer’s monthly exposure in terms of their instalments.

Please Note: Under no circumstances whatsoever do reputable Debt Counsellors reduce consumer’s debt. We simply reduce your monthly instalment in order to make it affordable and feasibly sustainable to repay your debt to your creditors!!

So whenever you see any marketing advertisements or ‘debt counsellors’ claiming they can reduce your debt or more commonly, make you financially free.. Run for the hills, because that is as much BS as waiting for our current government and leaders to turn South Africa into a first world country… Not gonna happen!!

So this whole important administration process of working with banks and creditors, restructuring contractual terms, renegotiating and reducing interest rates, is known as ‘Formal Debt Review’.

So essentially, in terms of the whole NCA (National Credit Act) process of assisting, relieving and rehabilitating the struggling South African consumer, you cannot have one without the other. Sadly, many debt counselling companies do not practise ‘debt counselling’ thereby just selling ‘debt review’ and this is where a whole world of problems arise.

This reckless practice of some of these debt counselling companies by just simply selling debt review is primarily the reason why our industry has the negative stigma attached to it in the eyes of many struggling consumers… This also makes it incredibly difficult for us to implement a much-needed debt management mechanism for struggling consumers who so sorely need it… Especially now as a result of Covid19.

To give you a bit more context, think of it this way. You’d never go see a doctor and just rock up for surgery, would you? Of course not, that’s absurd…

You first make an appointment for the doctor to assess you (debt counselling) and once the doctor is able to competently give you a prognosis, then he/she decides what course of medication you need in order to get better, or whether or not you are in need of surgery to solve the problem and make you better (debt review).

So now that you know the difference between debt counselling and debt review, be sure to when doing enquiries, to ensure that whoever you contact, they are in the business of practising both, responsibly and ethically, otherwise, they’re not worth their weight in gold as a competent Debt Counsellor.