As a country facing a lot of debt, we're doing our best to help South African consumers understand credit health, loans and other forms of finance. In this educational series, we're tackling the debt consolidation industry. Even though debt consolidation is the first step for many to escape mountains of debt, you should know as much as you can about it.
In this second post of our Debt Consolidation Education Series, we're going to talk about the difference between review and debt consolidation and what the process looks like.
Remember, if you're considering a debt consolidation loan, we can help you responsibly compare options on our Debt Consolidation Comparison page.
So, let's get started with the basics!
What does Debt Review mean how is different from Debt Consolidation?
Debt review, also known as debt counselling, is a debt relief measure created in terms of the National Credit Act (NCA) to assist consumers that are over-indebted. This is done through budget advice, restructuring of debts and negotiating with creditors. It is also a process created to protect consumers - specifically against credit providers.
It is different from Debt Consolidation because it doesn't only streamline a couple of debt repayments into a simpler and longer repayment strategy. It rather takes into consideration all your accounts and debt standing to help you rebuild your credit health through a holistic strategy.
How to know if you are over-indebted?
A few signs that you might be over-indebted are:
- You struggle to keep to the terms agreed with your credit provider, specifically paying on time
- You borrow money to pay off other debts
- You have to skip payments on certain accounts to enable you to pay others
- Overdraft facilities and debt is used to buy food and necessities
- You have received letters of demand or summons from credit providers or their lawyers
- There has been a judgement granted against you
Can you apply for Debt Review?
If some of these points sound familiar to you and hits close to home, you could qualify for debt review in South Africa. It is important to note that to qualify, you have to have a distributable income [regular income], as this will be used to offer reduced payments to your credit providers and create a payment plan. Also to note is if you are married in community of property, you and your spouse must jointly apply for debt review.
8 Steps to the Debt Review Process
So, what is the process if you feel you need a more holistic solution than that of a debt consolidation loan?
1. Find a debt counsellor
It is important to not use the services of just any person offering to help you with your debt. To get the full protection of the NCA and to protect you against fraudsters, only use a debt counsellor that is registered with the National Credit Regulator (NCR). These debt counsellors are specifically trained, verified and approved by the NCR. You can verify whether it is a registered debt counsellor by checking their registration certificate. The certificate should have the NCR logo on it and should display the debt counsellors details, as well as their registration number. You can also search for a registered debt counsellor on the NCR’s website.
2. Give your information to the debt counsellor.
The debt counsellor will need the information below to best assist you in setting up a repayment plan
- ID document
- Details of your required monthly repayments
- Monthly budget of other expenses such as food, petrol and school fees
3. The debt counsellor will then calculate whether you are over-indebted.
Essentially, they will determine whether your debt repayments are unaffordable, taking in to account your current income.
4. Application and Fees
If the debt counsellor confirms that you are over indebted, you will then be able to officially apply for debt counselling. It is very important that the debt counsellor explains all the applicable fees to you at this stage and that you make sure you fully understand them.
5. Crunching some numbers
The debt counsellor will take the information you provided and do some calculations. He will calculate how much money you need for living expenses and what you can afford to repay every month.
6. Getting listed
The debt counsellor will contact the credit bureaus and inform them of the fact that you are under debt review. They will then list you as such to ensure your full protection. This is not like being blacklisted. Once you have repaid all your creditors, your name will be removed from this list.
7. Negotiating with creditors
The debt counsellor will contact all your credit providers to ensure that the information provided is accurate and to make double sure of the amount that you owe them.
This is NOT like a blacklisting – it’s a protection. It will be removed completely once you’ve paid everything off.
If all the credit providers agree with the repayment proposals offered by the debt counsellor, a legal ‘consent order’ will be obtained. (Often, this could mean a reduction in fees and interest payable by the consumer.)
This means that the terms have been agreed to and can’t be changed independently by any of the credit providers.
Should one or more of the credit providers not like the terms, the debt counsellor will have to approach a magistrate with the proposed debt repayments to get a decision. As long as the repayment plan is reasonable, the court will it will most likely approved it.
8. Reaching an agreement
Once an agreement has been reached, the debt counsellor will give you your final repayment plan and also submit it to a Payment Distribution Agency.
This agency will take a lump sum from you each month and split it up between the credit providers, according to the repayment plan.
Your obligation is to keep up the monthly payments until such time as the whole amount has been paid off.
But keep in mind, it's only the solution to bad debt if you handle it with responsibility. While there are some real benefits to debt review, it is important that you do your part in understanding that you are still responsible for your debt.
We also realise this is a lot of information to think through as each person’s situation is different. So, we want to help you make the right choice. If you are considering debt review or a debt consolidation loan, we encourage you to make use of our debt consolidation comparison page to compare the different lenders and their basic options.
To your better financial future!