Financial and legal jargon isn’t just confusing – it can actually be harmful, if hard-to-understand terms get in the way of making the right decision. Here’s what you need to know to get back onto a sound financial footing.
First, the basics
- What does over-indebted mean?
Many people think this means being “bad with money”. In fact, being over-indebted simply means your income is no longer enough to cover your debt repayments while still meeting your essential living expenses – such as housing, food, and transport to work. This can happen for many reasons, such as loss of income, or unexpected expenses.
- What is debt review and debt counselling?
Debt review and debt counselling both refer to a legal process under the National Credit Act that helps over-indebted consumers repay what they owe in a more affordable way while protecting them from legal action. Under debt review, you still pay off the full amount you owe, but your repayments are renegotiated. The two terms can be used interchangeably.
- What is a debt counsellor?
A debt counsellor is a professional registered with the National Credit Regulator who assesses your finances, negotiates with creditors and guides you through the process. Always check whether the company offering debt review services is actually registered with the NCR as a debt counsellor and has a DC number.
- National Credit Regulator (NCR)
This is the government body responsible for regulating the consumer credit industry, including credit providers, credit bureaus, debt counsellors and payment distribution agents. It is also responsible for enforcing the National Credit Act, the piece of legislation which governs consumer credit in South Africa. Only NCR-registered debt counsellors are allowed to offer debt counselling / debt review services.
- Arrears
This means missed or overdue payments.
Understanding the process
Debt review is a legal process and there are particular steps that have to be followed and legal terms you’ll come across.
1. Affordability assessment
When you first meet with your debt counsellor, they will conduct an affordability assessment. This is a review of your income, expenses and debts to determine what you can realistically afford to repay each month. The affordability assessment determines whether you meet the criteria for being over-indebted and qualify for debt review.
2. Debt restructuring
Once the affordability assessment is complete, the debt counsellor will put together a debt restructuring proposal for your credit providers to review. This is a negotiation process, and only once there is either consent from all parties or a court order can your debt be restructured along the new terms. It’s important to know that your debt isn’t written off. Instead, it’s reorganised into a single affordable repayment plan, with longer repayment periods.
3. Understanding consent and court orders
If both you and your credit providers agree to a proposal, that agreement is known as a consent order and becomes legally binding. If creditors don’t all agree voluntarily, the repayment proposal may be made an order of court, making it enforceable.
4. Clearance certificate
Once you’ve paid your debt in full, you can exit debt counselling. Your debt counsellor will verify that your debt is paid up and issue a clearance certificate. Credit bureaus will be notified so that they can remove the debt counselling flag and you can apply for new credit.
Taking the next step
If you’re in over your head, figuring out what to do can be overwhelming. Talking to a debt counsellor such as Debt Rescue is obligation-free – and if you decide to apply for debt review, our counsellors will guide you every step of the way. We have over 15 years experience in supporting consumers to pay off their debt. Contact us today for an obligation free quote.