personal load while under debt review

Should you take a personal loan when under debt review?

National Credit Act (NCA)

Simply put; you need to avoid loans at all costs when you are under debt review. Taking a personal loan when you are under debt review can cost you everything you’ve worked very hard for.

When the National Credit Act (NCA) introduced debt review in 2007; many South Africans have since been assisted and prevented from being blacklisted, having their assets repossessed, or living with a heavy burden of debt.

The purpose of a debt management program is to eliminate credit card debt and teach consumers how to manage their money, however; while debt review may have its benefits; such as protecting your assets from being repossessed by the credit provider; it can also have major negative consequences if the process and agreement are not adhered to.

As such, debt review should not be treated as a quick or easy way to get out of debt. Applicants should resort to it only when truly necessary, and with the understanding that it will take a lot of commitment, discipline, and sacrifice from them.

How does debt review work?

During the debt review process, a debt counsellor assesses your outstanding debt and works along with you to create a restructured debt repayment plan. 

The debt counsellor then makes the effort to renegotiate interest rates and repayment terms with your credit providers with the intent of reducing your debt levels. 

You will then only have to pay one reduced repayment every month to your debt counsellor. 

Once the debt counsellor has drawn up an affordable monthly budget and repayment plan for you, you can then start your journey to financial freedom with some breathing room and better peace of mind without any more creditors harassing you.

However, when you are under debt review you:

  • Cannot take any new credit agreements (loans or financing of property)
  • Would have to pay additional fees such as debt counsellor fees, payment distribution, agency fees, etc.
  • Might end up paying higher interests due to prolonged repayment periods
  • Will have a flag on your credit report to advise creditors that you are undergoing debt restructuring.

It is also very important to note that when you are under debt review, you cannot miss any payments once you have settled and finalised your repayment plan. Missing a payment when under debt review can lead to your entire payment plan being annulled.

For your debt review to be successful, you’ll need to stick to every monthly payment in your repayment plan so that you don’t put your debt review agreement at risk.

What happens if you can’t pay your debt review?

Before you get started with the debt review process, you need to understand that you have been granted a lifeline to protect your assets and afford you a consolidated repayment plan with lower interest rates; so you’d have to avoid missing any payments at all costs.

Falling short on your payments or not paying them at all can lead to your creditors taking legal action against you, repossessing your assets, and even you losing all the payments you have already made towards the debt.

Make sure you understand what is expected of you before you sign on a debt review form or application, lest you put yourself at a financial disadvantage and risk your assets.

How long does the debt review process last?

While debt repayment under the debt review process can take up to 60 months on average; it is all depended on a number of factors, including:

  • How much debt you have currently;
  • How high your debt interest rates are; and
  • How committed you are to becoming debt-free.

What is a personal loan?

A personal loan is a short term borrowing of money for an individual. This type of loan is unsecured which means you do not have to put up the security of assets (such as your house, car or insurance policy) to get the loan.

This loan is usually taken out when you find yourself in a tough financial situation and you need money fast. For example, in an emergency, a wedding or a funeral. The repayments can be paid any time up to 36 months.

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Can I take out a loan while under debt review?

While under debt review, you cannot access further credit in the form of a loan or credit card. This is not to make life difficult but rather to help you regain financial control. If you continued to access credit during the process your debt would spiral out of control and you would be unable to make the committed repayments.

There are however a number of unregistered loan sharks and reckless lending companies in the market. If you are offered a loan while under debt review you should be very wary. It is likely these unscrupulous characters are looking to make money out of you by taking advantage of your vulnerability and will have incredibly high-interest rates.

The NCA (national credit act) introduced the debt review process so that South Africans in debt would be able to have a chance to rehabilitate their finances, The alternative would be to succumb to personal administration and dealing with the long term effects such as repossession of their assets.

The main aim of the debt review process is to get the person debt-free and focus on their current debt instead of building up more.

Why should I consider debt review?

  1. You’ll only pay one fixed monthly payment instead of multiple payments to different vendors
  2. Reduced monthly payments towards debt repayment can help you create room to afford your expenses
  3. You will be legally protected by the NCA from creditors repossessing your assets
  4. Credit bureaus no longer have the power to blacklist you when you are under debt review
  5. Take a break from credit and stop the revolving door of debt
  6. You will become debt-free and journey into a life of financial freedom

What happens if I need more money whilst under debt review?

The truth is that life happens to all of us, and sometimes we get overwhelmed by the immediate financial needs demanding our attention.

However; If you are still needing to fund your everyday expenses through credit, get in touch with your debt counsellor and discuss how they can assist you to better budget each month. You need to be able to manage the debt you currently have and learn to adjust your lifestyle until the debt is paid off. The sense of freedom at the end of the process will far outweigh any feelings of satisfaction from instant gratification.

Read more about the benefits and disadvantages of debt review.

Debt review summary

Undergoing Debt review can change your life if you are over-indebted; it can help you organise your debt and structure payment plans into much more manageable and achievable bites.

If you’re fearing that you will lose your home and car because you’re in too deep with debts, getting into the debt review process can help you protect your assets from being repossessed.

In the long run, Debt Review can provide debt relief to over-indebtedness and also protect you from having to depend on persistent personal loans to pay other debts. 

However; it is important that, before applying for debt review, you should contact creditors first, inform them about your struggles to pay your credit instalments, and see if they’d be willing to renegotiate different payment terms that would better suit your current situation.

Struggling to pay off your debt?