How debt review works
After the recent holidays many people find themselves in a financial fix. Here’s how to get help
DEBT counselling, also known as debt review, is often regarded as a good way to approach a major debt burden because you tackle it with the help of an expert.
WHAT IS DEBT REVIEW?
A debt counsellor helps you to get your debt restructured so you can pay it off monthly and still afford your living expenses. The counsellor does it by negotiating with your credit providers so the interest and fees on your debt are reduced and/or you can pay back the money over a longer period. Important Your debt isn’t written off but credit providers can’t take legal action against you while you’re undergoing counselling.
1 CONSULTATION You may approach a debt counsellor directly. If you’ve already failed to make payments you might also be referred to a counsellor by a magistrate or your creditors.
Information on registered debt counsellors is available from the National Credit Regulator (NCR) at ncr.org.za, Council for Debt Collectors (CFDC) at cfdc.org.za or the Debt Counsellors Association of South Africa (DCSA) at dcasa.co.za. A counsellor must be registered with the NCR to operate legally.
The debt counsellor will set up a consultation with you. You must take these documents along: copies of your ID book, payslip, bank statements, credit cards, loans, mortgages, store cards, car repayments and overdraft facilities. Important Only people with a regu- lar income qualify for debt review. If you’re indebted and have no income or have been retrenched, a counsellor could still advise you on how to deal with your debt but it wouldn’t be via the debt-review process.
2 ASSESSMENT To determine the extent of your debts and draw up a repayment plan the counsellor does an affordability assessment. All your accounts, including your bond and car repayments, are accounted for in the repayment process. If you were to cut expenses such as your gym membership or sell property, this will also be taken into account in your new affordable monthly budget. The debt counsellor: Examines your earnings, essential living expenses and debts. Checks if you might have been the victim of a credit provider granting reckless loans, in which case you might be able to apply to be exonerated from the debt. Reviews your budget to compile a repayment plan. Important Debt counselling isn’t free and you’ll be charged for the service over the course of the process (see box).
3 REPAYMENT The debt counsellor submits the repayment plan to your creditors to show what your monthly repayments to them could be. You don’t have to negotiate directly with them.
Because credit agreements are legally binding, you’ll need a consent order from a magistrate for any amendments to your original loan agreements should your credit provider agree to adjust your instalments and interest rate. If the creditors reject the proposed plan, the counsellor will approach a magistrate for a ruling. If the magistrate gives consent, the repayment plan becomes binding.
The debt counsellor produces a final plan, which is submitted to a payment distribution agency. You pay a single monthly instalment to this agency, which then pays your various creditors and your debt counsellor from this amount. Important While you’re under counselling you may not use any form of credit – credit cards, store cards, loans or overdraft facilities. You’re listed as a debt-counselling client with credit bureaus, which prevents you from getting further loans. You also won’t be able to get a credit card, and if you already have one, you won’t be able to use it for further credit because your bank will be informed you’re undergoing counselling.
4 REHABILITATION The counsellor should remain involved until all your debt has been settled and should also adjust your budget as your situation changes. As soon as your debt is paid off you’ll receive a certificate of proof and the counsellor should see to it that your bad record is scrapped with the credit bureaus. Once your record is cleared you’ll again be able to apply for loans. Important Complaints about debt counsellors can be sent to the NCR at dccomplaints@ncr.org.za and CFDC at info@cfdc.org.za.