In recent years, factors such as, fast-changing lifestyles and freely available credit have induced many individuals into borrowing large sums of money that may be beyond their capacity to repay. As interest rates continue to rise, these borrowers may face the worst of times, especially when burdened with heavy interest rates.

For individuals who are feeling the burden of debt, it makes sense to opt for professional help while dealing with a debt crisis. Borrowers who are presently struggling with repayments can seek help from financial planners who help in charting out a smoother way out of debt. This may come for a fee but the idea is to help burdened debtors in designing an ideal method for debt issues.

What is Debt Counselling?

A debt counselling is usually sought while addressing debts that burden an individual who is unable to pay them back. This facility helps to get out of serious debt troubles by planning and designing the right repayment plan for the borrower. 

Debt counselling is about a wise plan that is offered by experts who can also help to negotiate with creditors on the borrower’s behalf. This, in turn, helps to figure out a workable payment plan and ease the debt burden of the borrower while repaying the creditor on time.

Here is how debt or loan counselling helps:

  • It finds ways to fix current financial trouble
  • It educates the borrower about the ill-effects of misusing credit and improves financial management
  • It motivates troubled borrowers to choose a formal financial system

Loan counselling comes in the following three forms:

  • Debt Consolidation
  • Debt Negotiation
  • Debt agreements

1. Debt Consolidation - Debt consolidation is combining multiple debts to make a single payment. Loan counselling often suggests this to be a smart move especially if you are trying to balance multiple loan obligations, heavy interest rates, or other challenges which come associated with multiple debts.

2. Debt Negotiation - This solution comes as part of loan counselling, wherein, you can negotiate with creditors and seek to reduce the debt amount or ease the payback terms. Debt counsellors can help you in handling all such negotiations and coming up with a workable solution.

3. Debt Agreements - A debt agreement is legal, as it involves agreeing with the creditors. Debt agreements are made to ensure that you repay as per your affordability and not the entire loan amount. Once the creditor agrees to the terms of the agreement, the interest is then frozen on your accounts. 

Importance of Loan Counselling in India

India is witnessing a drastic lifestyle change among its millennials as more and more people are opting for loans to fulfil their aspirations. Sometimes, these borrowers are unable to manage their debts and tend to become defaulters. A loan counselling session can help in educating such individuals about controlling their financial situation and things to consider before taking more debt in the future.

While the above is true for urbanites, the rural areas in India are also seeing more number of people who lack proper financial education and end up approaching the non-institutional money lenders for sourcing debt. Such debt comes with an extremely high rate of interest (30% to 40% pa) and it makes it difficult for such borrowers to come out of the debt-trap. With proper financial education, these individuals can have a better future and source loans from the organised banking sector when needed.

Non-performing assets (NPA) in India are steadily rising as more and more banks struggle to recover the debt that is offered to individuals and institutions. The debt counselling process can help in stabilizing or reducing the NPA percentage as such borrowers can be educated about appropriate usage of available finance.

Benefits of Opting for Loan Counselling

There could be situations when seeking the help of a loan counsellor can prove to be helpful. People tend to believe that they need to be in the worst financial circumstances to choose loan counselling. However, it can help individuals in any kind of situation and educate them about financial planning. Here are some of the factors which are covered under a debt or loan counselling:

  • Importance of budget
  • Debt consolidation ideas
  • Financial advice
  • Credit rating and building of quality credit
  • Loan assistance
  • Debt repayment options

From day-to-day budgeting to loan counselling, there are multiple reasons why it makes sense to seek the help of a loan counsellor. It doesn’t matter whether the issue at hand is big or small, loan counselling can help in either case.

Debt counselling centres in India are often handled by retired bank officers since they are well-equipped to gauge the perspective of borrowers and banks alike. Their skills can help in coming up with a mutually acceptable resolution. 

How to approach loan counselling centres?

You can reach out to a loan counselling centre closest to you and request for a one-on-one meeting with the loan counsellor. It will help in designing a debt restructuring strategy after considering your financial condition and repayment capability.

The repayment plan could vary depending on individual parameters, however, they generally consider a reduction of interest penalties or even reduction of regular interest. This will help in arriving at a sum which can be easily repaid in instalments. A mutually agreed loan restructuring plan can prove help for both, the borrower and the creditor. Banks can also save additional money spent on recovery efforts.

Borrowers should learn that approaching a loan counsellor is far easier than going for the legal route to dispute loan repayment. These days, wilful defaulters are finding it increasingly difficult to deal with non-payment of dues. Banks are taking stricter measures against defaulters and this makes it difficult for borrowers to source loans in the future. Instead of getting stuck in such situations, it is more sensible to opt for a loan counselling session.

Wrapping Up

The concept of loan or credit counselling is still nascent in India due to lack of awareness of it and the stigma of not being able to manage credit is another reason. As it slowly picks pace, borrowers can start making the most of it to avoid falling into a debt hole which could be difficult to get out of.