Debt counselling is a service provided to consumers who can no longer afford to pay the monthly installments on their debts and is being threatened with legal action by their creditors. A debt counsellors job is thus to help their clients keep the wolf from the door by negotiating lower payment terms, while this usually mean their debt will be strung out over a longer period, the goal is ultimately to let them keep their assets and get them debt free.
Debt councelling is a regulated industry, you cannot just open an office and be a debt counsellor. In order to become a debt counselor you need to complete a training course and register with the National Credit Regulator (NCR) which costs R500. You also need to meet the following requirements:
- Be 18 years or older
- Have a grade 12 (Matric) or equivalent certificate (can can still qualify if you can prove you are studying towards a grade 12 or equivalent certificate)
- Must successfully complete a debt counselling course approved by the National Credit Regulator and provided by an institution approved by the National Credit Regulator
- Have a minimum two years working experience in a business, education, accounting, legal, consumer or counselling field
- Must not yourself be subject to an administration order
- Must not be under debt counselling yourself
- No adverse credit record (“blacklisted”), in other words you must be able to show you can manage your own finances before you can help others with theirs
- Must not be in a conflict of interest position. Example: you cannot refer your customers to loan companies for a commission, as this will indebt your customers further and be at conflict with your work.
Now as you have read above, there are some requirements to be met, I’m not usually one for over regulation but I agree with all of them. Debt counselling is a serious matter and you are dealing with people that might be depressed or in a bad or fragile state of mind. This is where the two years work experience comes in, you need to be cognizant of people’s feelings and how to deal with people and listen to them. Also the conflict of interest is a no-brainer, you are in a position where you can abuse the trust of people and you must be scrupulous in your advice.
When a client comes to you with all their debts. You will firstly run a credit check on them as well as ask about other debts, some debts such as vehicle finance may not show up on the credit bureau report. You also need to explain to them the whole process (this is very important; you don’t want people renegade on the payment plan later on claiming you misled them).
How you make money
A debt counsellor is allowed to charge certain fees:
Once off: Application and restructuring fee. (You can also charge a rejection fee)
Monthly: After care fee, how debt counselling remains a sustainable business is the monthly “after care fee” for the services they provide. A debt counsellors job is essentially not done until the client has paid off their debt and then they have to be supplied with a clearance certificate.
If you are still confused, how you can get paid and creditors get paid let me give you a simplified example of the whole process:
Let’s say you have a client with R120 000 in debt repayable over 12 months, but cannot afford their R10 000 a month repayments. A debt counselor will then renegotiate that debt to be paid back over 24 months, so instead of paying R10 000 a month, the client will pay R6000 a month, freeing up R4000 a month for the client in the process. So as the debt period has been extended by double, the client will now be paying R5000 a month towards the debt, R500 in interest and R500 a month in your fee (R6000 in total). That is how you make your money with numerous clients. That is obviously just a rounded down example so you can understand there is no mystery as to why creditors will back off (for one they are required by law to if the debtor has followed procedure) but they will eventually get their money back.
In the above scenario, the debt counsellor is entitled to the following fees:
Application fee: R50 (once off)
Restructuring fee: R6000 (once off, usually the first month)
After care: R500 (monthly for 24 months)
As you research you will see the various fees and what they are for. You can also charge a payment distribution fee if you are using such a service. Lets say your client above have 10 creditors that is each getting R550 a month. Ain’t nobody got time to pay the 10 creditors individually, what if you have hundreds of clients? That means thousands of creditors may need to be paid. So you use a payment distribution agency to disperse the funds.
It is imperative that the client stick to this arrangement to the end, if they break it their creditors can go after them (you need to explain this to your clients). Also people need to seek a debt counsellors intervention before they are served with papers.
So the debt counsellor at the end of the day, can prevent legal action, make people keep their cars, stop debt collectors from hounding them (basically just say “don’t talk to me talk to my debt counselor”). Basically bringing people peace of mind. Your job isn’t perfect, as your clients will now be in debt even longer and pay interest on it. Also they won’t be able to get finance if under debt counselling. And that is why the requirements are a bit strict, you need to be able to advise your people about all this, you need to be supportive and compassionate, I cannot stress this enough, Do not get into this business if you cannot conduct yourself in a professional manner required in this industry.
The first thing to do is to complete the course. Damelin has a part time course. But remember you have to meet the requirements. The course will teach you the whole process of debt counselling.