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Debt Counselling / Debt Review - What You Need to Know

As the Covid-19 pandemic has had devastating effects on the South African economy, individuals in South Africa have likely all felt the effects of the pandemic incredibly personally. On a financial level, some South Africans have taken out loans and acquired debt that they are frankly unable to pay back. Debt counselling and the debt review process is the solution - and although it's not always smooth sailing if you don't get the right partner - it's nothing to be afraid of...

Firstly, debt is a multifaceted topic, which often presents many questions- especially when one finds themselves in a sticky financial situation. Simply put, debt in monetary terms can be defined as money or something owed by one person to another. And debt can usually involve real estate property, capital, services, etc.

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All of which will hopefully give you a clearer idea of what the entire debt management process is about and how it can make a great impact on your life and your quest for financial freedom.

The Truth About Debt Review (also known as Debt Counselling)

When dealing with debt review/debt counselling, you want to know the facts and what it entails right from the start. The truth about going through the debt review process is that it is not always easy, but in the end, it's very much worthwhile.

Debt review was introduced in South Africa in 2007 through the National Credit Act. The National Credit Act's main objective is to assist people battling with their debt - whether it is repayments on their houses, cars, credit cards, and accounts or are facing possible repossession.

How does one then begin the process of going under debt review? When you are placed under debt review, you have appointed a debt counsellor who has worked through your income and expenses and has determined that you are over-indebted and debt stressed.

This debt counsellor will then inform your creditors and the credit bureaus and draw up an interim repayment plan.

  • This plan often reduces your monthly debt repayments by up to 50% and reduces the interest rates on unsecured lending.
  • Your debt repayment plan, created by the debt counsellor, will then be submitted to a registered payment distribution agency (PDA) that makes all the payments to your creditors on behalf of the debt counselling company
  • Once your creditors accept the revised repayment plan, legal action cannot be taken against you with regard to your debts under review.
  • Once all your debts have been repaid, you will be issued with a clearance certificate by your debt counsellor and they will notify the credit bureaus that you are no longer under debt review/debt counselling.

It’s important to note that debt counselling is not like blacklisting and any record of being under review will be removed from your credit record once the process has concluded successfully.

What are the advantages of debt review?

There are many advantages to going under debt review, and below we will just pinpoint a few you should know about off the bat!

1. One fixed monthly payment

The more account payments you have due every month, the easier it is for you to accidentally miss a payment and make your situation worse. Missing a single payment can also affect your credit score and result in late payment fees, which are often expensive.

Another problem that arises when your household income isn’t high enough and you have overspent and over-committed to items that you cannot afford is that you are left with the dilemma of which creditor to pay at the end of the month. You will likely have great difficulty tracking all of your payments. And in bad scenarios, you may even take out more debt to make it through the month.

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. 

2. Reduced monthly payments towards debt while under debt review

The main aim of debt counselling is to help you pay off your debt for good while still allowing you to have enough money to cover your other expenses throughout the month. Therefore, your debt counsellor will negotiate and likely reduce your monthly debt repayment by extending your repayment period. By paying a decreased amount in repayments every month, you can afford to pay off your debt and cover all of your other living expenses whilst on the journey.

3. Legal protection

The significant advantage of debt counselling, or being in the debt review process is that once you’re under debt review you will not have to worry about any legal letters or phone calls from creditors. The National Credit Act legally protects you and your assets from creditors. This means that creditors may not hassle you during this time, and your debt counsellor will take over all communication with creditors on your behalf!

4. Take a break from credit while under debt review

Once you’re officially under debt review, your credit profile is flagged at the credit bureaus in South Africa, and they are aware of the actions you are taking to repay your debt. This means you cannot take out any further debt until the debt review process is complete. This is a great way to stay clear of incurring more debt and to start focusing on a debt-free future, even though can be worrying to some who feel they need a loan to survive the process.

The beauty of the debt counselling/debt review system is that once you have settled all your debts, you will receive an official clearance certificate, and the credit bureau will be notified to remove the flagged listing.

5. You will become debt-free if you fully complete the debt review process

There is a guarantee that if you commit to the debt review process and follow the stipulated plan you will settle your debt through the debt review process. If you are committed to working towards a debt-free future and you keep up with your monthly payments towards debt, you will gain financial freedom through debt counselling and it will be so rewarding and worthwhile! 

Are you motivated to change your financial health this year? Join Meerkat's Debt Management program today to start changing your finances for the better. 

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Can I get a personal loan while under debt review?

It is not possible to get a personal loan while still 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 try and make life difficult but rather to help you regain financial control. If you were able to continue accumulating credit during the debt counselling process, your debt would spiral out of control and you would be unable to make the committed repayments.

There are, however, several 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 as this is not allowed. These unscrupulous characters are likely looking to make money out of you by taking advantage of your vulnerability and will have incredibly high-interest rates.

The National Credit Act introduced the debt review process so that South Africans in debt would have a chance to rehabilitate their finances; the alternative would be to succumb to personal administration and deal 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.

You’ve seen the advantages of debt review and hopefully have a better understanding of the whole process, now we will touch on when and why you should consider debt review.

  • Firstly, while under debt review, you’ll only pay one fixed monthly payment instead of multiple payments to different vendors. Making your life much simpler! Less admin!
  • Secondly, your debt counsellor will negotiate reduced monthly payments towards debt repayment, which can help you create room to afford your expenses.
  • Third, the NCA will legally protect you from creditors repossessing your assets.
  • Lastly, credit bureaus no longer have the power to blacklist you when you are under debt review. These are, but a few reasons why going under debt review will make your life easier and lead you towards financial freedom!

What is Debt Counselling?

During the debt review process, a debt counsellor helps you with your debt management by assessing your outstanding debt, and works with you to create a restructured debt repayment plan. Debt counselling professionals are highly trained financial experts, and you must make sure that you are comfortable and trusting of your choice in debt counsellor. The debt counsellor then makes an effort to renegotiate interest rates and repayment terms with your credit providers with the intent of reducing your debt levels.

People often wonder how you will pay your debt counsellor for their services. Your creditors agree that the first two reduced monthly repayments are allocated to your debt counsellor for their services and to cover all legal costs.

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.

To Conclude:

It's vital to remember that once you've decided and finalized your repayment plan, you can't skip any payments while you're under debt review. If you miss a payment while under debt review, your entire payment plan may be cancelled.

To ensure that your debt review is effective, you must make every monthly payment under your repayment plan on time to avoid jeopardizing your debt review agreement. If you find yourself in any difficulties give your debt counsellor a call. They are often able to help

However, as we stated at the outset of this article, the debt counselling procedure is not always smooth sailing, and you may face significant challenges along the road. But it's well worth it!

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