Consider debt review only as a last resort
FIRST introduced by the National Credit Regulator (NCR) in 2007, the aim of the debt review process is to assist the surge of over-indebted consumers who cannot meet their debt obligations. And while debt review may seem an easy way out of a tight financial situation, consumers should be well aware of the process, duration and costs involved.
Credit bureau Compuscan’s statistics indicate that of the 19 273 105 local credit active consumers, 532 718 of these are currently under debt review and 87 706 in the process of applying for debt counselling.
However, many are still unaware and often surprised when it comes to the costs associated with the debt review process. In addition to their debt restructuring fee, debt collectors are within their rights as per the NCR’s counselling fee guidelines to charge for a range of services.
Some of the service costs consumers may not be aware of include:
A restructuring fee to the maximum of R6 840 is payable in your first month. An application fee of R57. A credit check fee of R57. A rejection fee of R342 should the debt counsellor not consider your application,
A monthly after-care fee for 24 months equal to 5 percent of the monthly instalment on the payment plan, to the maximum of R456.
A monthly after-care fee for the remaining period equal to 3 percent of the monthly instalment.
A legal fee of R855 (for a consent order) or whatever the debt counsellor pre-agrees with the consumer for non-consent orders,
A sundry fee is due in the second month of rehabilitation, this is a one-off fee equal to your rehab payment (a minimum of R2 000 and a maximum of R4 500.)
Payment distribution agency fee of 3 percent of the monthly rehab payment (up to the maximum of R570) each month.
In addition, a withdrawal fee equal to 75 percent of the restructuring fee will be charged should consumers choose to end the debt review. Consumers also need to realise that debt review requires adherence to a very strict monthly budget to drastically cut down on their spending habits.
And because debt review statuses are only removed from the database once a clearance certificate is issued, Compuscan’s data suggests that a person can potentially remain on the database in excess of 10 years. This means that the consumer in question will have to stick to this limited budget for this period.
Restriction
In addition to this, many consumers often try to access additional credit during the debt review process, as they are unaware that by ignoring this restriction, the debt review process will in fact be terminated.
The reduced monthly instalments implemented during the debt review process will also result in the repayment term being extended. This in effect means that consumers will end up paying more interest on their debt as they are paying it back over a longer period of time. This is something that many consumers are often unaware of, and are mistakenly under the impression that no interest is levied during the debt review process. Another mistaken impression is that the debt is written off under debt review when this is not the case.
Debt review is a process that assists over-indebted consumers by restructuring their debt and ensuring they are able to meet their monthly financial obligations and still manage to stay on track with their debt repayments.
It is important to understand that even though you are under debt review, you are still responsible for your debt. Debt counselling does not imply that your debt will disappear and someone else will take it over and pay it for you. Debt review is something that consumers should only consider as a last resort.
Merely applying for debt review as a means to manage debt will not necessarily guarantee that the application will be granted. Consumers should first rather contact their credit provider to make an alternative payment arrangement.
Although debt review is something that should only be considered in the direst of circumstances, Compuscan stats show it is a process that does work when followed through correctly. However, for the 127 578 consumers whom after assessment are considered over-indebted, debt review may be their only foreseeable option.