Debt Review and Debt Counselling – How will it Help Me?
Is it Right for You?
Debt Review and Debt Counselling
Debt Review or Debt Counselling Help Me?
Debt Review and Debt Counselling How will it Help Me?
Debt review also know as debt counselling is a legal measure instituted by the South African Government to assist over-indebted consumers to pay off their debts in a manner that enables them to keep their hard won assets while simultaneously offering credit providers some measure of guarantee that they will be paid at least the capital portion of their loan. Consumers are able to exit the debt review or debt counselling process with their credibility and most importantly their credit records intact.
The South African government introduced the National Credit Act (NCA) in 2007 to prevent aggressive lenders from taking advantage of vulnerable consumers. The process enables experienced, professional, third party mediators to liaise with powerful lenders on behalf of over-indebted consumers in a process that results in monthly debt repayments being restructured and reduced through a combination of reduced interest rates and or increased repayment periods. In extraordinary cases, debt can also be cancelled.
Entering the debt review process is designed for consumers who have reached the end of their road and can no longer afford to pay their regular monthly debts. There are a number of criteria that have to be met before a person can be accepted into the debt counselling process including:
- The person must be gainfully employed so he must be in a position to pay off his debt
- After a thorough assessment of a person’s financial situation, the person must be declared over-indebted
How do you determine whether you are over-indebted?
It is advisable that you apply for Debt Review or Debt Counselling if:
- You have maxed out your credit cards and continue to do so every month
- If you are using your maximum overdraft facility
- If you have fallen behind on one or more payments
- If you do not have enough money to cover your living expenses
- If you are unable to save any money at the end of the month
- If you have depleted or raided your emergency fund to cover your most critical payments
- If you have had to sell your assets to cover your expenses
- If you are constantly dipping into your retirement savings
- If you are stressed out and losing sleep about your current financial situation
How can debt counsellors assist me with my financial situation?
Once a consumer has been declared over-indebted a counsellor assists through the following:
- Drawing up a realistic monthly budget in consultation with the client
- Drafting a debt restructuring proposal featuring reduced monthly repayment amounts
- Enabling the payment of one easily affordable monthly repayment amount
- Negotiating with a stressed consumer’s creditors on behalf of the client
- Legal protection from your creditors preventing your assets from being seized.
Drawing up a realistic, affordable monthly budget
It is important when discussing your financial situation with your counsellor that you be completely transparent enabling him/her to draw a realistic reduced repayment plan that takes into account all your day to day expenditure as well as providing some leeway for unforeseen expenses such as vehicle maintenance etc. This will inform the debt restructuring process and if done correctly will contribute greatly to the ultimate long term success of your debt repayment efforts.
The debt restructuring process
Debt Counsellors will look at your personal financial situation carefully and assess not only where savings can be made on your monthly expenses but which of you repayment agreements can be extended, where interest rates can be reduced and in some circumstances even debt agreements cancelled all together where lenders can be found to have been reckless in extending credit to an over-indebted consumer or where a lender is found to employ predatory tactics.
Your Debt Counsellor will liaise with your creditors on your behalf
From the moment a consumer applies for debt review, the debt counsellor takes it upon himself to communicate with a client’s creditors as well as banks and credit bureau that a person has entered the debt review process. He then undertakes to keep all parties abreast of any developments that may affect a the consumer’s financial affairs in so far as it relates to their debt repayments, thus minimising the stress usually associated with having to deal with one’s lenders.
How Debt counsellors restructure a consumer’s debt
Debt counsellors will negotiate with a consumer’s lenders to secure the best possible deal for their clients. This is done primarily through a combination of reduced interest rates and longer payment periods. Where predatory lending practices by a lender are suspected, a counsellor may recommend that that specific debt be cancelled altogether.
Consumers are Legally Protected While Under Debt Review / Debt Counselling
Sometimes a threat of legal action by a creditor eventually sparks a person to seek the assistance of a debt review counsellor. It is important to understand that while under debt review a consumer is protected by the National Credit Act against legal action only as long as a consumer continues to make payments towards his/her debt. Your debt counsellor will take care of all legal matters as long as you are within their debt counselling programme. Where a consumer stops making payments according to the re-negotiated repayment terms this protection falls away and the consumer opens himself up to legal action which may culminate in having his assets seized, and sold to offset against his debt less whatever costs are incurred in the process which can be quite substantial.
A question often asked by consumers is how long does debt review last.
The duration of Debt review or debt counselling often depends on the consumer him/herself and his ability and commitment to pay off the debt incurred. In assessing a person’s financial situation, a debt counsellor will recommend a repayment period on an individual account basis so smaller loans can be paid off quicker and larger debt typically over a 36 to 54 month period. Once a consumer has paid off the bulk of their debt – excluding perhaps a car or home loan – debt counsellors typically recommend that they exit the debt review process and continue making the payments of these items as normal without the guidance of a debt counsellor.
The National Credit Act (NCR) was introduced in 2007 specifically to assist over indebted consumers from being placed under administration and having to live with the consequences of this difficult and often destructive process. It is important that a consumer select a debt counsellor that is registered with the National Credit Regulator (NCR) as these practitioners have stringent guidelines and regulations that they follow when assisting over-indebted clients. This is also the only way a consumer is afforded legal protection under the NCR.
A number of factors will influence the duration of one’s period under debt review or debt counselling including:
- The amount of debt that was taken on by a client
- The monthly repayment amount that can be afforded by a consumer
- The ability to ramp up instalment amounts during or towards the end of the process
- A person’s commitment to becoming debt free
Although your debt counsellor will set an affordable minimum monthly repayment amount, clients are encouraged wherever possible to pay in any extra amount that they may have to hand on a monthly basis if possible. This will speed up the debt review period enabling consumers to exit debt review and remove any impediments to applying for new credit facilities.
Alternative ways to speed up your debt review process:
Often a person’s personal financial position improves while under debt review and if this is the case with you, we advise that you take the following steps to speed up your exit from the process:
- Pay higher interest debt first – This has the effect that overall you will pay less over the long term
- Don’t splurge that bonus – If you receive a yearly bonus from your employer, a tax windfall, a policy that matures or sales commission, be sure to allocate the bulk of the money towards your high interest debt thereby reducing your overall debt burden fast
- Increase your earnings – Investigate ways to increase your monthly revenue. Whether it be selling some of your possessions, or turning a hobby into a part time business, earning extra income every month and allocating this towards your debt repayments is a sure fire way of speeding up your exit.
- Lower your monthly expenses – Finally lower your monthly expenses by possibly downscaling to a smaller home, selling your expensive luxury car and buying a smaller cheaper make and model and of course cutting out as many luxuries as possible. These are steps are easily reversed once your personal financial situation improves again.
What is the effect of Debt Review on my employment prospects?
Being under debt review should have no negative effect on your employability, besides it is only a temporary situation. In fact compared to employers having to manage employee garnishee orders, which many simply detest, most employers view debt review in a positive light as the prospective employee has taken responsibility for his debt and is making efforts to pay his/her way out of his debt. The flip side of course is if an employer does decide to run a credit check on a prospective employee only to find that he/she has not made payments in accordance with the debt review process then of course it can be expected that the employer will not hesitate to strike the person from his shortlist of prospective candidates.
What do I do if unforeseen circumstances or an accident prevents me from paying my monthly instalments?
Lenders can be expected to be reasonable and each circumstance will be investigated on a case by case basis and if it is indeed found that a person has landed in hospital and been unable to work for a short period it does happen that lenders will overlook the transgression with the expectation that the person commence repayments as soon as possible. We strongly advise that consumers communicate with their debt counsellor to communicate any unforeseen, temporary inability to pay their regular monthly instalments. Having said this, it is unreasonable for a consumer to see debt review as being a payment holiday. Abuse of the process is not tolerated and can have dire financial and legal consequences.
What are the costs involved in entering the debt review process?
All Debt counsellors registered with the National Credit Regulator (NCR) have their fees regulated by this regulatory body and fees are reasonable and designed to assist over-indebted individuals to get out of debt without entrapping them further. All fess will be discussed before hand and explained to the client prior to entering the debt review process. Bear in mind also that fees and disbursements are built into the regular monthly payments in order to make them as painless and affordable as possible for consumers.
I am currently unemployed, may I still be able to enter debt review?
It depends. One of the qualifying criteria to be accepted into debt review is that the person is able to make regular monthly payments towards his debt obligations. If you are unemployed and receive regular monthly rental income from a property or receive a pension, then Debt Review can still be a viable solution for you. Please remember also that debt review is but one of the legal vehicles that may be used and it is best to discuss your personal situation with one of our experienced counsellors.
Will I be harassed by my creditors while under debt review?
Creditors and credit bureaus ware typically contacted within 48-72 hours of a person being placed under debt review and by law they are then obliged to communicate only with the debt counsellor handling your case. Where a lender does contact you directly, he can simply be referred to your debt counsellor who will liaise with him on your behalf.
Does Debt Review really work and is it for me?
Since the new Credit Regulation Act came into effect in June of 2007, many grey areas and niggles have been ironed out of the system and as with any new legislation the implementation of the law has been ironed out and perfected over time. It is generally agreed that the legislation is now functioning as it was originally intended. Millions of over indebted consumers have been assisted through the process of debt review over the past few years. Throughout the years a number of rogue debt counsellors have been de-registered from the NCR, but these cases have been few and far between. The South African debt review process is considered by our international peers to be amongst the most successful of it’s kind in the world.
As to whether or not it is suited to you, we would advise that if you feel that you are stressed by your inability to pay your debts, that you contact one of our trusted counsellors for a personal assessment of your financial position. If you feel that you are reaching the end of your tether and feel that you may qualify according to the criteria listed above, then you have nothing to loose. It is better to be proactive and take control of your situation than to wait until the wolves are at the door.
Feel free to contact one of our experienced debt counsellors to discuss your personal financial situation. Simply fill out the form below or contact us on our national hotline number if you prefer to have a one on one conversation.