The Advantages & Disadvantages of Debt Review

Debt counselling also known as debt review can be a lifeline for those overwhelmed by debt. It’s a regulated process in South Africa designed to help consumers regain control over their finances. But is it right for you? Let’s explore the pros and cons of debt counselling to help you make an informed decision.

What is Debt Counselling?

Debt counselling, introduced by the National Credit Act (NCA), is a legal process aimed at helping over-indebted South Africans. This process involves working with a registered Debt Counsellor who negotiates with creditors on your behalf, creating a more manageable repayment plan. This plan can often reduce your monthly debt repayment by up to 50%, ensuring you have enough for living expenses while keeping up with your debt obligations.

Once you’ve completed the debt counselling process, a Debt Review Clearance Certificate is issued, signaling that you are no longer under debt review, and your credit record begins to improve.

The Advantages of Debt Counselling

Debt counselling offers numerous benefits for those struggling to keep up with their financial obligations:

1. Reduced Monthly Payments: One of the biggest advantages is the significant reduction in your monthly debt repayments. By negotiating lower interest rates and extended repayment terms, a Debt Counsellor can help you reduce your payments by up to 50%.
2. Single Monthly Payment: Instead of juggling multiple debt repayments, you’ll pay a single, consolidated amount every month. This simplifies your finances and reduces the risk of missed payments.
3. Protection from Creditors: Once you’re under debt review, creditors can no longer take legal action against you. Your assets, including your home and car, are protected from repossession.
4. Peace of Mind: Debt counselling can provide immense relief by stopping creditor harassment and allowing you to regain control of your financial situation.
5. A Path to Debt Freedom: The goal of debt counselling is to help you become debt-free. With a structured repayment plan in place, you can finally see a way out of debt.

The Disadvantages of Debt Counselling

While debt review offers many advantages, it’s important to be aware of the potential downsides:

1. Temporary Credit Restrictions: During the debt review process, you won’t be able to apply for new credit. While this can be frustrating, it’s necessary to ensure you don’t take on more debt. The restriction is temporary, and once you’ve completed the process, you’ll be in a better position to apply for credit with an improved credit score.
2. Time Commitment: Debt counselling isn’t a quick fix. The process can take several years to complete, depending on the amount of debt you have and your repayment plan. Patience and discipline are required, but the rewards are worth it.
3. Cost of Debt Counselling: While debt counselling can save you money in the long run, there are costs involved in the process. However, these fees are regulated and included in your repayment plan, so you won’t need to worry about upfront costs.

Frequently Asked Questions (FAQs) about the debt review process

Is it bad to be under debt review in South Africa?

No, it is not bad to be under debt review in South Africa. In fact, debt counselling is an excellent option if you’re overwhelmed by debt and struggling to keep up with your repayments. When you are in debt review, it provides a structured way to manage your debt, protect your assets, and work toward financial freedom.

If you’re considering debt counselling, it’s essential to choose a reputable and registered Debt Counsellor. Meerkat’s Debt Counsellors are registered with the National Credit Regulator (NCR) and have helped thousands of South Africans regain control of their finances. We also partner with South Africa’s most reputable Payment Distribution Agency (PDA) to ensure your payments are handled efficiently and securely.

How long does one stay under debt review?

There is no standard time to say under debt review as the length of time depends on how much debt you have, and how much you can pay towards your debt each month. Many clients under debt review, however, do stay in the process for about 3-5 years. 

Can you borrow money under debt review?

As was noted earlier in the blog post, you will have a temporary restriction regarding taking out credit or loans when you are under debt review. This is only temporary and will be lifted once you have successfully completed the process. 

Can I buy a house immediately after debt review?

While technically you should be able to access credit one week after the debt review flag has been lifted from your credit report, we advise waiting at least 3-4 months before attempting to access credit again. It's also important to note that purchasing a house is a big loan, and could require some more time for approval. Your credit score is also not the only factor to consider when it comes to home loan approvals. 

Ready to Take the Next Step?

If debt is weighing you down, don’t wait any longer. Fill out the contact form below, and one of our expert Debt Counsellors will get in touch with you to discuss how debt counselling can help you. Take control of your financial future today and start your journey toward debt freedom with Meerkat.

Who is Meerkat?

Meerkat is a financial wellness company that aims to help South African consumers do MORE with their money. We do this by helping with debt repayment negotiations, providing affordable funeral insurance and helping you kickstart an emergency fund!

Fill in the contact form on our website to receive a free callback from the Meerkat team today.