Is Debt Counselling the Same as Debt Review? A Plain Guide to the Names

If you have been quietly searching whether debt counselling is the same as debt review, you have probably noticed that your letters, the adverts and your credit report never quite use the same words. You are not imagining it. This guide explains why one process wears several names, which similar-sounding services are genuinely different things, and what a company's choice of words reveals about who is really behind the advert. A lot of what ranks for these searches is written for the United States, where the words mean something else entirely.

Is debt counselling the same as debt review?

Yes. In South Africa, debt counselling and debt review are two names for one formal process, run by one kind of professional: a debt counsellor registered with the National Credit Regulator.

South Africa's National Credit Act, which created the process, calls it debt counselling. When you apply, the credit bureaus are informed and your record is flagged as being under debt review. That shorter phrase stuck, and today adverts, bank letters and credit reports use whichever name the writer learned first. Whichever words you are reading, it is the same service, the same person and the same legal process.

What happens when you go for debt counselling?

Here is the process in brief. A debt counsellor assesses what you earn, what you need to live on and what you owe, then proposes a repayment plan with lower instalments over a longer period. If your creditors accept it, the plan is usually made an order of court so that it binds everyone. From there you pay one monthly amount, and a registered payment distribution agency divides it between your creditors. While the process runs, creditors generally cannot start new legal action over the debts included in the plan.

Once you understand the process, the real question is who will run it for you, because the experience differs a great deal between counsellors. Before approaching anyone, you can compare registered debt counsellors and see who is actually out there.

Which is better, credit counselling or debt settlement?

Neither, really. Both are different services from debt counselling, and neither offers the formal protection that debt review does to the public.

Debt settlement usually means a private company negotiates with your creditors to accept a reduced lump sum, often a portion of the full debt paid at once. It can suit someone with access to a lump of cash. Creditors are free to refuse, you usually have no legal protection while talks continue, and fees can be steep. A large written-off balance can also carry tax consequences, so ask a professional before going this route.

Credit counselling, as American content uses the phrase, is closer to advice: help with budgeting, sometimes an informal repayment plan, but no court order and no protection. When a South African company offers credit counselling, ask exactly what service sits behind the words.

Be careful with debt relief, too. It is not a defined process in South African law, so it means whatever the advertiser wants it to mean. That alone is reason to ask what is actually being sold before you share your details.

An administration order is a genuine legal process, but a different one. It comes from a magistrate's court and is run by an administrator, not a debt counsellor. It has traditionally been used for smaller debts and has a reputation for being expensive relative to what it achieves. Whatever an advert suggests, it is not debt review.

What can a company's wording tell you before you call?

Quite a lot. A registered counsellor usually advertises in their own name or that of their registered practice, and refers to registration with the National Credit Regulator. Warning signs include big promises about wiping out debt, pressure to sign today, and forms that want your phone number before telling you anything. That pattern usually points to a lead generator, a middleman who sells enquiries on rather than counselling you.

Much of what ranks for these searches is American. Look for the single-L spelling of counselor, mentions of credit counseling agencies, amounts in dollars, and offers of debt consolidation loans. In South Africa, consolidating usually means borrowing a larger amount to settle several smaller debts, which is a borrowing decision, not debt review.

Before you pick up the phone, you can check a debt counsellor's NCR registration. Some brands are marketing names sitting in front of a counsellor behind the scenes, so it also helps to find the counsellor behind the brand.

What are the disadvantages of debt counselling?

The main ones:

• New credit is generally off the table while you are under review.
• A flag stays on your credit record until the process is properly closed.
• Regulated fees apply, and they usually come out of your monthly payments.
• Missing payments can, in some cases, give creditors grounds to end the process.

Living on a tight budget is part of the deal, and depending on your employer, working in the financial sector can raise questions. None of this makes debt review a mistake if you are genuinely struggling. It simply means the answer to is debt review a good idea depends on your counsellor, not on the process.

How much does a debt counsellor cost?

Fees are set by regulation rather than by each company, so the honest answer is that you should ask for the current fee schedule in writing before signing anything.

In most cases the fees come out of your monthly payments rather than as cash upfront, though the structure depends on your circumstances and when you start. A counsellor who cannot produce the regulated schedule, or whose quoted figures do not match it, is telling you something important.

Can I cancel debt counselling?

You can usually withdraw during the application stage, before a plan is confirmed. Once a court order is in place, though, exiting becomes harder and generally needs the agreement of your creditors or a court.

Should your situation improve, the cleaner exit is to settle your debts early and obtain a clearance certificate, which removes the flag from your record. That certificate can become its own project if your counsellor goes quiet, so it helps to know how to chase your clearance certificate while you are still on good terms with them.

From here, the next step is practical: browse and compare debt counsellors and ask each one the same two questions. What are your fees, in writing? And who exactly will be handling my case? The words in an advert tell you plenty. Those two answers tell you more.

Photo by Annie Spratt on Unsplash