To some extent, it’s impossible to escape debt. Becoming a homeowner and entering the middle class, starting a business; debt is part of the process. However, sometimes we make mistakes or suffer unforeseeable reverses to our financial health. You can do everything right and still find yourself facing impossible, unmanageable levels of debt. In this event, the answer is often debt review. Nevertheless, you need to weigh the debt review pros and cons before you decide whether debt counselling is your avenue to financial security.
Debt review, also known as debt counselling dates back to the 2007 National Credit Act. In this piece of legislation, the South African government laid down the process for citizens to restructure their debts with a qualified counselling firm. Since then, countless South Africans have saved their homes, credit, and livelihoods through debt review. While it’s not right for everyone or applicable to every situation, you should never fail to consider it as a possibility for curing your financial woes.
Debt review has had a profound impact on the lives of thousands of South Africans since it’s introduction – and the process can do the same for you. We have gathered some of the best advantages of debt review that portrays how this process can enhance your financial status.
Here is a summary of the advantages:
Allow us to elaborate. We’ll take a look at each of the advantages and then share examples of the benefits of debt review. We’ll use Sam as our fictional character for the examples.
Here we go!
The fundamental purpose of debt review is to give you a manageable payment plan for your debts. If it’s impossible to make your debt payments and meet your living expenses, then you’ll normally see your possessions repossessed one-by-one. Debt review will reduce your payments to a level that doesn’t cut into your living expenses.
Before applying for debt review, Sam’s monthly debt instalment was R10 976.60. After her reduction, her monthly debt repayment was reduced to R4 567.50 per month. Besides the obvious advantage, which is lowering her monthly debt cost, these large monthly reduced payments play a huge role in Sam’s short and long term financial status. Plus, she is guaranteed to have more money to spend where she needs it most and the joy of not stressing about unpaid bills in the present day.
Check to see by how much you could reduce your debt.
*Remember, this is only an estimate. Actual results may vary for each individual.
One of the worst parts about having many debts to pay is the risk of accidentally missing a payment. It can be difficult to keep track of different credit cards and loans which might have originated with different lenders, and missing one can have serious consequences. Through debt review, you’ll make a single payment to your debt counsellor.
Because Sam has many loans, it became increasingly difficult to keep up with all of her creditors individually, especially since she has to do it monthly.
Here are Sam’s loans:
But now, after successfully applying for debt review, she makes one simple consolidated repayment which is distributed on her behalf. Making it easier to track, reduces the amount of paperwork she needs to do, and makes it easier to plan for future payments.
After starting debt review, your debt counsellor will assume the responsibility of communicating with your debt-holders. Indeed, lenders and credit bureaus are barred from bypassing your counsellor to get to you.
There are many things creditors are allowed to use against you, like suspending your credit facility, requesting goods to be returned in the case of an instalment sale, approaching a court for a warrant of execution to attach goods, and basically harras you with phone calls and written notices all day long (you might know exactly what we’re talking about here!).
Sam was well aware of these issues, and endured her fair share of harassment, but now as long as she is under debt review, she will not receive any legal notices or phone calls from creditors. Sam and her assets are legally protected by the NCA. Therefore, she will communicate with creditors exclusively through her debt counsellor.
In order to qualify for a debt review, you must undergo debt counselling. And as long as a debt counsellor determines whether you qualify as over-indebted, you will be offered some protection during this period from credit providers. In the event the debt counsellor concludes that the consumer will not be able to meet his or her debt obligations after completing the assessment, that person can be considered over-indebted.
Sam could lose everything she owns if a creditor files a suit against her, seeking to collect money she owes. This includes her home, car, and her life savings. Further, a lawsuit may drain her finances for legal fees, consume her time and energy and harm her reputation.
However, while under debt review, she will be legally protected as long as she makes monthly payments toward her debt in accordance with her new debt repayment plan. It is worth mentioning that if she were to default on her repayment plan, it might result in the debt review being terminated and legal action being initiated against her.
Through debt review, you’ll gain access to a debt payment plan that’s tailored to your income and debt levels. This plan is specifically set up to simplify the entire process and make monthly payments more affordable. While it requires dedication and determination, you have a guarantee of reaching your debt-free future once you’ve done the work.
Due to her several loans, it’s only normal for Sam to barely manage and catch up with her debt. But when she opened a new account at the latest fashion retailer, she actually started to struggle greatly to pay her bills on time.
Fortunately, with the support and regulation of the debt review process, Sam can follow her new monthly repayment plan, won’t be tempted to take on unnecessary debt, and will see her total debt decreasing each month until she is fully debt-free.
This is an important advantage of debt review – it is designed to help over-indebted consumers become debt-free and has the proper rules in place to make it happen.
The Debt Review process does not leave a permanent record on any consumer bureau database. Unlike other avenues or administration, there is no permanent record of your involvement in the process. Your debt review status will be completely erased once you are declared debt-free.
Sam is worried that the debt review status will be recorded permanently on her credit record and negatively impact her credit score. But luckily, as soon as Sam pays off her debt, her counsellor will issue her clearance certificate.
The debt review clearance certificate must be issued within seven days of the final debt repayment as mandated by the National Credit Amendment Act of 2014. Meaning, the credit bureaus have seven days to clear Sam’s record of any credit information regarding her debt review status.
Cons of Debt Review
Before signing up for debt review, it is also essential to understand the disadvantages of undergoing debt review. Additionally, we include these items since they are viewed as drawbacks by some, but a closer look reveals that some of these cons, could be viewed as pros instead.
A summarized list of the disadvantages of debt review includes:
Let’s discuss each one individually.
There are costs associated with undergoing Debt review. Luckily, these fees are regulated by the National Credit Regulator (NCR) and are included in your repayment plan. For some, it can be hard to swallow paying small additional service fees (such as the regulated R50 application fee, or R300 administration fee) while in such a difficult financial spot.
Still, it is important to consider the benefits when deciding to make use of debt review services. In the end, the cost of losing your car, home, or other important assets might dramatically exceed these small charges.
Once you start the debt review process, a notice goes out to all credit bureaus that freezes your access to new credit. You won’t be able to take any new debts until you’re debt-free. While some view this as a limitation, it’s easy to see why this requirement is in place and how it can protect you from squandering your newfound financial security and speed up the recovery process.
Once you start debt counseling, the NCA and your firm protect you from creditors, lenders, etc. You won’t default on any of your payments, so long as you meet your unified and consolidated payment toward the firm you’re working with. However, debt review cannot protect you from cases when a creditor has already begun pursuing legal action against you.
On the other hand, debt counseling will still be able to protect you from the consequences of failing to pay your other debts by incorporating those into a new payment plan. Procrastinating on debt review until one of your creditors is already coming after you is a serious mistake, but waiting until more creditors follow suit is even worse.
In many cases, it’s not possible for people to apply for debt review. For instance, only those who are over-indebted are able to apply for debt review. If a Debt Counsellor examines your case and decides you are not over-indebted, meaning that you’re capable of paying your current debts with reasonable discipline, then you’re on your own. Additionally, you can’t file for debt review without a steady household income to build a plan around. People without an income are often those who need debt relief the most, but debt review is not an applicable avenue for them.
If you are over-indebted, you do not have as many options to fix the problem as you may expect. Considering all the pros and cons of debt review, the pros outweigh the cons and guarantee an effective solution. And of course, you will be able to take advantage of the protection it provides, pay less money than you are currently paying, and even live stress-free from the harassment of your creditors.
After all, the key to getting yourself out of debt lies as much in revising your spending habits and improving your budgeting abilities as it does in paying off your debts. So, it might be time to tackle your debt issue, and the safest way to do it is by taking debt review into consideration.
While there are some disadvantages to consider with debt review, it’s telling that the biggest drawback is the fact you might not qualify. While it is unfortunate that you can be turned away from debt review, those who qualify will see that the pros far outweigh the cons. It’s also possible to avoid legal proceedings by being proactive and applying for debt review as soon as you feel that you’re over-indebted. If you fear that you’re over-indebted, don’t hesitate; get in touch with us to find out if you qualify for debt review today.
Find out if you’re eligible to reduce your debt and protect your belongings.
Disclaimer: This website and any information herein is not intended to be, nor does it constitute, financial, tax, legal, investment, credit, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified professional directly.