Understanding the Important Facts about Debt Counsellors
When grappling with overwhelming debt problems, most individuals aimlessly wander the vast expanse of the internet, seeking a viable solution. Amidst this search, they often stumble upon a plethora of websites promising to alleviate their debt burdens, offering a fresh start, and a swift journey towards financial freedom.
However, the reality is drastically different. A significant portion of these websites are run by Debt Counselling firms, whose services are a far cry from those offered by Debt Restructuring Specialists such as Licensed Insolvency Trustees.
To help you navigate this complex landscape, we’ve compiled a comprehensive guide outlining critical facts about Debt Counsellors.
The Truth Behind ‘Non-Profit’ Debt Counselling Firms
Contrary to popular belief, most Debt Counsellors are funded by banks and prominent creditors, which implies that their loyalty lies with these financial institutions, and not the debtor.
Why is this important?
Understanding this dynamic is crucial as it directly impacts the types of solutions these counsellors offer.
The ‘Non-Profit’ Misnomer
The term “non-profit” is often associated with Debt Counselling firms, which might lead one to believe that they are akin to a relief agency working for the betterment of debtors. However, this notion is far from the truth.
The creditors behind these firms cover their operational costs, salaries, and even bonus payments. This structure is designed to incentivize performance by the counsellors, thereby ensuring that the creditors’ interests are safeguarded.
The Impact on Principal Debt and Credit Ratings
Debt Counsellors typically do not reduce the principal debt. Instead, they focus on negotiating lower interest rates to ease the debtor’s monthly payment obligations. The extent of this interest rate reduction depends on the debtor’s financial capabilities, determined through a budget formulated by the counsellor.
Once the interest rate is slashed, the debtor’s credit rating takes a hit, plummeting to an R7. This decline effectively bars the debtor from accessing additional credit from any source for an indefinite period.
Who Benefits from these Interest Reduction Solutions?
While these solutions might seem like a win-win situation, where the debtor gets a breather from high-interest rates, and creditors can hope to recover their principal amount, it’s not all sunshine and rainbows.
The truth is, these interest reduction solutions primarily serve the creditors’ interests by maximizing their chances of recouping their principal money.
As for the debtor, while the reduction in interest might provide temporary relief, it’s not a long-term solution to their debt problems.
Making Informed Decisions
Before seeking help from a Debt Counsellor, it’s crucial to weigh your options carefully.
Being well-informed and understanding the intricacies of debt management can significantly facilitate your decision-making process, enabling you to choose the best course of action to resolve your debt issues.
