How does debt review or debt counselling work?
Get the most out of debt review
Debt Review – your path to Debt freedom
Debt Review also called Debt Counselling was promulgated by the South African government to assist over-indebted consumers pay off their debt while protecting their assets.
How does debt review or debt counselling work?
The process begins when an over-indebted consumer approaches a qualified debt counsellor who is registered with the National Credit Regulator (NCR) for assistance with regards to re-negotiating his or her debt burden.
A debt counsellor will negotiate with an indebted person’s creditors with a view to reducing interest rates as well as extend repayment periods which has the effect of reducing a person’s monthly debt instalments. Once a debt repayment proposal has been accepted by one’s creditors, the courts are approached in order to formalise the debt repayment levels. Consumers then pay a single monthly sum to a payment distribution agency who then pays the various creditors on behalf of the consumer.
It is important to realise that in order to be accepted into debt review a number of criteria have to be met including :
- A consumer must apply to enter debt review
- A consumer must have a regular monthly income
- He/she must be employed
- A consumer’s personal debt situation needs to be assed and only those that are deemed to be over indebted will be accepted.
- No payment holidays will be allowed
- Consumers may not sign up for new credit during the review process
- There are costs attached to debt review
Be sure never to renege on your monthly repayments
It is important to ensure that while your negotiations are proceeding that you are confident that you are able to comfortably meet your revised monthly debt repayments as defaulting on renegotiated payment agreements could expose you to punitive legal action from one or more of your lenders and you would have no recourse.
South Africans are getting poorer
As electricity rates, fuel costs taxation etc have increased, so South African’s living expenses have increased dramatically and this coupled with static salary increases over the past few years has led to a situation where more and more consumers are finding that they are unable to make ends meet, with some consumers running out of money to buy food and pay for basic expenses with middle to high income earners being the most exposed to these risks.
What are the costs associated with debt review or debt counselling?
- As indicated previously debt review comes at a cost but the good news is that the costs are built into the monthly repayments.
- Fees are dictated by the National Credit Regulator (NCR) and include the following:
- Application fee: R 50.00
- Once off administration fee R 300.00
- Once off restructuring fee: R 8 000.00 for a single application or R 9 000.00 for a joint application (married in community of property)
- Legal fees need to be paid at the beginning of the process
- Monthly maintenance fee pegged at 5% of the repayment amount caped at R 450.00
- The payment distribution agency (PDA) also requires a R 15.00 per month fee. *
The act does stipulate that the use of a payment distribution agency is optional and allows consumers to make regular monthly payments to their creditors themselves but most consumers prefer to make one monthly payment to a PDA who then distributes it on their behalf.
It is important to note that where a family is receiving a social child support grant, these funds cannot be included as income as this is designed to be spent exclusively on children’s care.
Also it must be said that although there are costs associated with debt review, consumers do not have to find cash before they can enter into the process as the costs will simply be built into the monthly repayments.
The debt review process can take anywhere from 24 to 60 months and provided a consumer pays diligently every month, a clearance certificate is issued by your debt counsellor at the end of the process. He will also inform all creditors and credit bureaus to remove any negative review of a person relating to unpaid debts from their systems.
Select an experienced and trusted debt counsellor
It is critical to ensure that you select a trusted and experienced debt counsellor such as Debt-911 who have been around since the inception of debt review rather than one of the fly by nights who seem to be pervasive in every service industry.
A number of debt counsellors have already been de-registered for failure to register and for failing to appoint a payment distribution agency or for charging consumers fees for services they were not rendering.
Debt-911 is open and transparent in its dealings with over-indebted consumers as well as their creditors and has fostered a trusted relationship with both major lenders and their over indebted clients such that we have an enviable customer referral record.
We have noted with alarm how some of our less scrupulous competitors boast about being able to achieve up to 60% reductions in their clients debt levels which we know are unrealistic and these numbers can only be achieved by being dishonest and unethically inflating a consumer’s monthly debt repayment levels. This is something that the National Credit Regulator (NCR) has specifically warned against.
Our approach is that the more a consumer can comfortably afford to pay towards servicing their debt, the better a deal we can negotiate on their behalf and the quicker over-indebted consumers will successfully exit the debt review process.
If a client opts to make use of a payment distribution agency, we advise those clients to insist that their PDA issue a monthly statement. Note that under no circumstances should a debt counsellor force a consumer to make payments via a PDA.
Do you prefer to do business face to face?
Although not necessary some consumers may feel the need to come in for a personal consultation with one of our debt counsellors. In most instances we are able to assist a client enter the process via phone or even e-mail depending on a client’s preference.
If you prefer to do business face to face, please feel free to set up an appointment with one of our experienced debt counsellors.
Once an over indebted consumer has entered debt review, we would advise the following:
- Verify that your case has indeed been referred to the court and that the information reflected on the affidavit that you are about to sign under oath is indeed correct
- Ensure that you have copies of correspondence between debt-911 or your preferred debt counsellor and all your various creditors especially in so far as it pertains to offers and counter offers and critically, acceptances and ensure that you can actually afford to pay the renegotiated rates.
- Be sure to obtain your copy of the court order
- Be sure never to skip a monthly repayment as this could nullify your revised repayment agreements
- Obtain regular monthly statements from your payment distribution agency
- Do not neglect to obtain regular monthly statements from your various credit providers and be sure that all your monthly payments have been accepted and recorded correctly
Benefits of entering into debt review
There are numerous benefits to entering into debt review if you feel your debt is running away from you.
- Once you have applied for debt review you have a 60 day period of protection where your creditors can not take any legal action against you.
- Fees are folded into your monthly debt repayments
- Lenders have embraced the concept and are inclined to accept reduced but reasonable debt repayment proposals
- As long as you continue to make monthly payments in accordance with your revised repayment schedule you and your assets are protected from legal action
- This is the most cost effective path to debt freedom
- Consumers exit the process with their dignity and their credit records intact
- Consumers are able to seek credit once they have successfully exited the process
What documentation is required in order to submit your application?
The following documents must be submitted as part of your application for debt review:
- Your Identity Document
- Copies of all your debt agreements
- The latest statements from all your creditors
- 3 months bank statements
- Your latest employer’s pay slip
Debt Review VS Debt Extinguishing
The South African government has announced further amendments to the existing legislation which offers even more radical assistance for over indebted low income earners where their debts can even be written off completely under certain circumstances but there are strictly qualifying criteria as follows:
Qualifying criteria for Debt Extinguishing
- A person must be declared to be over indebted by the NCR.
- The consumer must earn less than R 7 500.00 per month.
- The consumer must have more than R 50 000 in unsecured debt and this cannot include a vehicle or home loan.
- Consumers under administration, those who have been sequestered or under debt review, do not qualify
- No automatic qualification will be allowed.
- Each application will be assessed on a case by case basis
- Applicants must be made to the National Credit Regulator (NCR) directly
- The process is only open for 4 years during which all applications must be submitted for consideration
The Debt Extinguishing Process
Once a consumer has applied for the debt extinguishing process, the NCR will appoint someone to assess your case and determine your degree of over indebtedness. If it is felt that you qualify, a new payment plan will be drawn up, extending the repayment period for up to 5 years. An assessment will also be made as to whether you have been extended loans in a reckless manner which could mean it or a portion of the debt could be written off. Only if a consumer is unemployed will his repayments be suspended temporarily for up to 24 months in the hope that he/she will be able to find employment and resume payments to his/her creditors in that time.
A review of the process will be made 8 months into the process by your counsellor and again after 16 months to assess and re-assess your financial situation. If it is found after 16 months that you really have no way of servicing all or part of your debt, only then can all or a portion of your debt be legally extinguished.
It must be noted that debt extinguishing will remain on your credit record and this could lead to you being unable to ever being able to secure another load whether it be a for a cell phone contract, a car or even a house so before you embark on this process be sure to think very carefully before proceeding.
Monthly Debt Repayments Getting You Down?
The bar has been set very high for debt extingushing and only a selct few will qualify to have their debts expunged. All applicants will be placed through a process of debt review before they will be considered for debt extingushing.