It refers to the activity of helping people to improve the way they manage their debts.
Consumers who declare themselves over-indebted may need to use the services of a Debt Counsellor to negotiate a restructured payment plan.
People are over-indebted when they become unable to repay all financial obligations on time. In several cases, the total debt repayments exceed their income.
This legal process is intended to assist over-indebted people that struggle with debt through budget advice, negotiations for reduced payments, and the restructuring of debts.
Debt Counselling involves advising the consumers about the liquidation of a debt due under a credit agreement.
This service is not free, which means debtors seeking to receive Debt Counselling must pay fees approved by the laws and regulations of their respective countries.
The Function of a Debt Counsellor
The job of these people is to give financial help and advice about managing debts.
Debt Counsellors usually assess the full extent of people’s debt situation and their assets.
They should help people to set an acceptable standard of living while repaying their debts. All of this measures will have to fit the consumer’s affordability.
Debt Counsellors may also provide the debtors with an agreed, affordable and realistic monthly budget to resolve the financial issue in the shortest possible time.
The design of a repayment scheme legally acceptable to the creditors, the prevention of repossession of assets, and the financial rehabilitation are the tasks of Debt Counsellors.
To sum everything up, their primary objective is to allow debtors to get on with their lives.
Advantages of Debt Counselling
When consumers choose to apply for Debt Counselling by requesting a debt review, credit providers will not take any legal actions against the debtors while Debt Counsellors asses their financial condition.
If such an assessment proves the consumers are over-indebted, Debt Counsellors will help the debtors to consolidate their payments into one reduced monthly repayment plan.
These measures allow debtors to enjoy some relief because they don’t have to worry about getting harassed by credit providers calling to demand payment or using lawyers as threatening.
Instead of paying numerous accounts, Debt Counselling provides with alternatives to work out an amount that covers all of the repayments.
Debt Counsellors may set aside a specific amount of income for the consumer’s needs such as food, school fees, transport costs, among others.
The assets of the debtors, which may include home and car, get protected from repossession as a result of defaulting on repayments.
Such an approach helps people to negotiate a repayment plan that fits their financial condition and overall needs.
Debtors who get placed under debt review can’t apply for new credit during the process, which prevents people from getting deeper into debt.
Many debtors become aware of the fact they are over-indebted. But when a Debt Counsellor says otherwise, they issue a rejection letter.
When that happens, debtors can either take that letter to court so they can apply to get declared as over-indebted by a court order.
Another choice would be sitting down with the Debt Counsellor to restructure the budget, improve financial planning skills, and craft a repayment plan to present it to creditors.
During the Debt Counselling process, people have to pay some legal fees such as a consent order, which is a contract between the debtors and their creditors on a debt rearrangement plan.
However, most of the fees debtors may need to pay will likely get reworked into their repayment plan.
There’s also the possibility of people not getting to cover their debts during the Debt Counselling process.
Sometimes that occurs due to credit providers starting legal procedures against debtors before they undergo debt review.
In such cases, the debt owed to these particular creditors gets excluded from the Debt Counselling process.
If consumers want to avoid getting entangled in such a situation, they should request a debt review as soon as they start struggling to manage finances due to getting too indebted.
Another potential disadvantage of the Debt Counselling process is related to Debt Counsellors themselves.
Not all Debt Counsellors are legitimate, which is why consumers or debtors who are interested in undergoing this process should check their Debt Counsellor of choice’s registration number.