What is Debt Review in South Africa
Struggling with debt in South Africa? Debt review can help! Learn how to manage your debt, reduce repayments, and achieve financial freedom. NDRC Debt Counsellors – Free Consultation.
This article offers a clearer and more concise explanation of debt review in South Africa, focusing on the benefits and considerations for those struggling with debt.
The National Debt Review Center
What is Debt Review in South Africa?
In 2007, the National Credit Act introduced debt counselling, a program to help South Africans struggling with debt on things like houses, cars, and credit cards. This program can even help people at risk of losing their belongings.
Debt review, also known as debt counselling, is a legal process regulated by the National Credit Regulator (NCR) to assist South Africans in managing overwhelming debt. A debt counsellor assesses your financial situation, negotiates with creditors to lower interest rates and monthly repayments, and creates an affordable repayment plan.
A significant percentage of South Africans are struggling to keep up with their debt obligations, as 42% of respondents across income levels say they cannot manage their debt. Only 16% say they have no debt.
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KEY TAKEAWAYS
- Debt review is a legal process in South Africa that helps people struggling with overwhelming debt. It involves a debt counsellor who negotiates with creditors to lower interest rates and create a manageable repayment plan.
- Debt review offers significant benefits. Reduced stress, protection from legal action, and a chance to improve your credit score after completing the program.
- There are some limitations. You won’t be able to access new credit while under debt review, and the process typically takes 3-5 years to complete Should you not have a home loan or vehicle finance.
- Debt review can be a good option if you’re overwhelmed with debt. Consulting a registered debt counsellor can help you decide if it’s the right solution for your situation.
- The National Debt Review Center can help you navigate the debt review process. They offer free consultations and can assist you in assessing your finances, negotiating with creditors, and building a personalized repayment plan.
Book with one of our Debt Review Experts below!
Benefits of Debt Review
- Reduced Stress and Improved Financial Health. Debt review provides immediate relief by consolidating your debt into a single, manageable payment. This frees up money for essential expenses and reduces the burden of dealing with multiple creditors.
- Protection from Legal Action. While under debt review, you’re protected from legal action, repossessions, and creditor harassment.
- Once you complete the program and pay off your debts, you’ll receive a clearance certificate. With responsible financial management after debt review, you can rebuild your credit score.
- The advantage of going under debt review means that you no longer have to stress about your monthly debt repayments. A debt counsellor will simplify the process for you. And you will only have one fixed lower repayment per month to pay towards your debt.
Things to Consider before you Apply for Debt Review
- Limited Access to New Credit. This is a crucial aspect of debt review. While under the program, you won’t be able to access new credit cards or loans. This may feel restrictive, but it serves two important purposes. Firstly, it prevents you from accumulating further debt, which is the core issue debt review addresses. Secondly, it encourages responsible financial habits by forcing you to live within your means and focus on paying off existing debt.
- Time Commitment: Debt review is a commitment, typically taking 3-5 years to complete depending on your total debt, repayment capabilities and if you do not have a home loan or vehicle finance. This may seem like a long time, but it’s important to remember that you didn’t accumulate this debt overnight. Debt review offers a structured and realistic approach to becoming debt-free, with the ultimate goal of achieving financial freedom.
Is Debt Review Right for You?
This is a critical decision. If you’re drowning in multiple debt payments and feel completely overwhelmed, debt review can be a lifeline. It offers a structured approach to managing your finances and ultimately achieving freedom from debt.
Consulting with a registered debt counsellor is a crucial first step. They can assess your financial situation, explain the debt review process in detail, and help you determine if it’s the optimal solution for your specific circumstances. Don’t hesitate to seek professional guidance – it can empower you to make an informed decision about your financial future.
How does debt review work in South Africa?
Don’t be intimidated! Debt review is simpler than you might think. Here’s a breakdown
1. Your debt counsellor will analyze your income and debts to determine if you’re over-indebted. This initial step provides a clear picture of your financial situation.
2. Once over-indebtedness is confirmed, paperwork will be completed to officially begin debt review. This ensures all parties are on the same page and the process adheres to regulations.
3. Your debt counsellor will contact creditors to verify your outstanding debt balances. This step guarantees accuracy and transparency in the negotiation process.
4. You’ll be listed on a database managed by the National Credit Bureau (NCR) indicating your participation in debt review. This informs creditors and protects you from additional credit offers.
5. The NCR will be formally notified of your debt review application. This is a mandatory step for legal and regulatory compliance.
6. Your debt counsellor will act as your advocate, negotiating with creditors for reduced interest rates and more manageable repayment terms. Based on this negotiation, a personalized and sustainable repayment plan will be established for you.
7. Once creditors approve the negotiated terms, a consent order will be issued. This legally binding document confirms the agreed-upon repayment plan.
8. Finally! You’ll start making a single, consolidated monthly payment to your debt counsellor who will distribute the funds to your creditors according to the agreed plan.
Here’s what to do if you’re already under debt review.
- Stick to Your Repayment Plan. This is crucial! Missing payments can jeopardize your debt review status and potentially lead to legal action from creditors.
- Manage Your Budget Wisely. Avoid unnecessary spending and focus on prioritizing essential expenses. Remember, the goal is to become debt-free.
- Avoid New Debt. While under debt review, you won’t be able to access new credit cards or loans. This may seem restrictive, but it prevents further debt accumulation and encourages responsible financial habits.
- Maintain Open Communication with Your Debt Counsellor. If your financial situation changes, or you have questions, communicate openly with your debt counsellor. They are there to guide and support you throughout the process.
- Celebrate Milestones. Debt review can take time, so acknowledge your progress. Celebrate milestones like completing a year or significantly reducing your overall debt.
Things to Avoid During Debt Review
- Do not skip any payments. This is a critical no-no! Missing payments violate the terms of the debt review agreement and could lead to the program being terminated. This can leave you worse off than before, with creditors potentially taking legal action to recover their debts.
- Avoid unnecessary purchases that could jeopardize your ability to make your monthly payments. Prioritize essential expenses like housing, food, and utilities. Remember, the goal is to become debt-free, and responsible spending is key.
- Do not even try to apply for credit. Debt review restricts access to new credit cards or loans. This may feel limiting, but it serves a vital purpose. It prevents you from accumulating further debt and encourages responsible financial management by forcing you to live within your means and focus on paying off existing obligations.
- Open communication with your debt counsellor is vital. If your financial situation changes, or you have questions or concerns, don’t hesitate to reach out. Your debt counsellor is there to guide and support you throughout the process. Keeping them informed ensures they can best represent your interests.
- Do not ignore important documents and email communications. During debt review, you will receive documents from your debt counsellor and creditors. Review these documents carefully and promptly respond to any requests for information. Ignoring them can cause delays or disruptions in the debt review process. If there is something you do not understand, let your debt counsellor know.
Here’s a breakdown of the potential costs associated with debt review in South Africa October 24, 2024
- Application Fee (R50-R300) vat exclusive. This is a one-time fee paid at the beginning of the process to cover the initial assessment of your financial situation and determine your eligibility for debt review.
- Restructuring Fee (Up to R9,000) vat exclusive. This fee is usually equal to the total amount you’ll be repaying your creditors every month under the debt review plan. There’s a maximum limit, however, which can be:
- R8,000 for individuals
- R9,000 for married couples in community of property
- Magistrates Court Legal Fee (Up to R9,000) vat exclusive. This fee is usually equal to the total amount you’ll be repaying your creditors every month under the debt review plan. There’s a maximum limit, however, which can be:
- R8,000 for individuals
- R9,000 for married couples in community of property
- Aftercare Fee (5% of monthly repayment, capped at R450) vat exclusive. This is an ongoing monthly fee charged by the debt counsellor to manage your debt review case. There’s a maximum limit to this fee as well.
- Legal Fee of (R750) if The Matter will be Sent to The National Consumer Tribunal. This is a one-time fee for obtaining a consent order, which legally binds the agreed-upon repayment plan with your creditors. In some complex cases, additional legal fees might be negotiated with your debt counsellor.
- Payment Distribution Agent (PDA) Fee of R15 per creditor distribution vat exclusive (Optional): A small fee might be charged by the PDA for collecting and distributing your monthly payments to your creditors.
Key Points
- Debt counsellors cannot charge any fees unless you agree to proceed with debt review after the initial consultation.
- Debt Counsellors must provide proof of work done on each of the above-mentioned fees.
- The application fee is the only fee typically charged before you officially enter debt review.
- There are regulations in place to ensure debt counsellors cannot withhold services due to unpaid fees (excluding the application fee) if they haven’t met specific deadlines.
Can I cancel debt review or debt counselling?
Cancelling debt review in South Africa is possible, but it depends on the stage of the process. Here’s a breakdown:
Check out our debt review removal archives to learn more about debt review removal.
Important Considerations.
Cancelling debt review doesn’t eliminate your debt. You’ll still be responsible for paying your creditors and the cancellation process can be lengthy and expensive, especially through the court system.
What if you are under debt review and need a loan urgently?
Unfortunately, in South Africa, it’s highly unlikely you’ll be able to get a loan while under debt review. Here’s why;
1. Legitimate lenders perform credit checks before approving loans. Since debt review flags your credit report, it signals you’re already struggling with managing debt. Granting you another loan would be considered reckless lending by the National Credit Act (NCA).
2. Debt review aims to help you manage existing debt, not accumulate more. Allowing access to new loans could undermine the program’s purpose.
While under debt review, be extremely cautious if someone offers you a loan. These are likely scams by unregistered money lenders or reckless lending companies who exploit vulnerable people. Offering loans during debt review is illegal, and these unscrupulous characters are only looking to profit from your situation.
They’ll likely have incredibly high-interest rates, trapping you in a cycle of debt that can be much worse than your original situation. Do not engage with them and report any such offers to the National Credit Regulator (NCR).
Here is a brief recap on what we have covered on this article.
Feeling overwhelmed by debt? Debt review can be a powerful tool, but the process might seem complex. Here’s a quick recap to guide you.
- Is Debt Review Right for You? A registered debt counsellor will assess your financial situation to determine if you’re eligible for debt review. There are various tools offered online that can help speed up the process. Check the My Pocket Debt Counsellor App by NDRC.
- Check Steps & Fees Involved Here.
- What NOT to Do During Debt Review.
- Skip payments
- Make impulse purchases
- Apply for new credit
- Lack communication with your debt counsellor
- Ignore important documents
- Debt Review Costs.
- Application fee
- Restructuring fee
- Aftercare fee (monthly)
- Legal fee (one-time)
- Optional PDA fee (monthly)
- Cancelling Debt Review is possible, but complex and can be expensive. Consider discussing adjustments with your counsellor first. or consult with a debt review removal expert.
- Needing a Loan Under Debt Review? Not likely from all registered credit providers banks. Beware of predatory lenders with high-interest rates.
Debt review can be a strategic solution for managing overwhelming debt. By understanding the process and its limitations, you can make informed decisions and achieve your goal of becoming debt-free.
Frequently Asked Questions
What happens when you are under debt review?
Negotiated Repayment Plan: A debt counsellor negotiates with creditors to reduce your interest rates and create a single, manageable monthly payment plan that fits your budget.
Streamlined Payments: You make one payment to your debt counsellor who distributes the funds to your creditors.
Credit Bureau Listing: You’ll be listed on a database to inform creditors of your debt review status and prevent you from accessing further credit.
Legal Protection: Debt review shields you from legal action by creditors and asset repossession.
What are the disadvantages of debt review in South Africa?
1. You can’t apply for new loans or credit cards while under debt review.
2. Debt review typically takes 3-5 years to complete, depending on your initial debt amount.
3. There are associated fees like application, restructuring, aftercare, and legal fees.
How long does debt review last in South Africa?
The average duration can be anything from 12 months to 60 months if you do not have any secured assets, but it can vary based on your initial debt and the agreed repayment plan.. (i.e. if you have a bond the process can take up to 20 years or 84 to 118 months if you have a vehicle finance)
How do you qualify for debt review in South Africa?
1. You must be over 18 and legally able to enter into a binding contract.
2. You must be earning a steady income.
3. You must be over-indebted, meaning you struggle to meet your monthly debt obligations.
4. If married in community of property, your spouse might need to be involved.
Is debt review a good idea?
Debt review can be a powerful tool if you’re overwhelmed by debt. It provides a structured approach to managing your debt, reduces interest rates, and protects you from legal action. However, the extended timeframe and limited access to credit might not be suitable for everyone. Consider the pros and cons and discuss them with a registered debt counsellor before proceeding.
Who doesn’t qualify for debt review?
1. Juristic Persons (Companies or debt under a company)
2. Individuals already under sequestration (a form of insolvency)
3. Non-South African citizens
4. People who don’t meet the over-indebtedness criteria
How long do you pay for debt review?
The average duration can be anything from 12 months to 60 months if you do not have any secured assets, but it can vary based on your initial debt and the agreed repayment plan.. (i.e. if you have a bond the process can take up to 20 years or 84 to 118 months if you have a vehicle finance)
Can I buy a car immediately after debt review?
While under debt review, new credit applications are generally not approved. Once you’ve completed the program and your credit score improves, you might be eligible for a vehicle finance.
How long can debt review last?
Until you have completed the program or there is a court order declaring you no longer overindebted or rescinding your debt review application.
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