What is debt review?

Debt review, also known as debt counselling, is a debt relief measure in South Africa that helps over-indebted consumers get out of debt. The National Credit Act (NCA) introduced the process in 2007 to prevent over-indebted consumers from being blacklisted and having to deal with the consequences thereof.

Debt review has become a lifeline for many South Africans who are struggling to make ends meet because of unmanageable debt.

If you are earning an income but you are unable to meet your  minimum credit obligations every month, then help is available through a process called debt review.

The National Credit Regulator (NCR) has provided guidelines for debt counsellors to follow when assessing whether a consumer is over-indebted and eligible for debt review. These guidelines take into account the consumer’s income, expenses, and debt obligations to determine whether they have sufficient funds to cover their living expenses while also servicing their debt.

Benefits of Debt Review:

Debt review legislation is designed to protect the over-indebted South African in the event that they can no longer afford to pay their creditors. This means protecting your assets and ensuring you have an affordable way to cover your cost of living and get out of debt.

  • Creditors can’t harass you

Once you are under debt review, your creditors are not allowed to contact you directly. All communication between you and your creditors will be through a debt counsellor, who will act as a mediator between you and your creditors.

  • One reduced monthly debt repayment

The debt review process aims to reduce your monthly debt repayments to a more manageable amount, allowing you to meet your financial obligations while still affording your basic living expenses. When you enter debt review, your debt counsellor will negotiate with your creditors to reduce your monthly payments and interest rates, which can help you manage your debt more effectively.

  • Protection from legal action

While you are under debt review, your creditors cannot take legal action against you, which can provide you with some relief from the stress of debt collection.

  • Your assets are protected

When you enter debt review, a debt counsellor will negotiate with your creditors on your behalf to come up with a more manageable payment plan. As long as you stick to this payment plan, your assets, such as your home or car, are protected from repossession or legal action by your creditors. This can provide peace of mind and help you maintain financial stability while you work towards becoming debt-free.

  • Debt free

One of the primary benefits of debt review is that it can help you become debt-free. This is achieved by negotiating with creditors to lower your monthly payments and interest rates, and extending the repayment period. By following a debt review plan and making regular payments, you can eventually pay off your debts in full and become debt-free. This can have a significant positive impact on your financial well-being, as it frees up money that was previously going towards debt payments, and allows you to start saving for the future.

Overall, debt review can provide consumers with a path to financial stability and a way to manage their debts effectively, while protecting them from legal action and helping them to rebuild their credit over time.

How Does Debt Review Work?

Debt review is a legal process in South Africa that provides individuals who are struggling with debt an opportunity to repay their debts over a longer period of time, while also protecting them from legal action by their creditors. The process is also known as debt counselling.

The debt review process typically involves the following steps:

1. Assessment

The individual seeking debt review meets with a debt counsellor to have their financial situation assessed. The counsellor will review their income, expenses, and debts to determine whether they are over-indebted and qualify for debt review.

2. Application

If the individual is deemed to be over-indebted, the debt counsellor will help them complete an application for debt review. This application includes a proposed repayment plan that outlines how the individual intends to repay their debts over a longer period of time.

3. Negotiation

The debt counsellor will negotiate with the individual’s creditors to obtain their agreement to the proposed repayment plan. Once all creditors have agreed, the plan becomes legally binding on all parties.

4. Payment

The individual makes a single monthly payment to a Payment Distribution Agency (PDA), which distributes the funds to their creditors in accordance with the repayment plan. The individual’s creditors are not allowed to take legal action against them while they are under debt review, provided they adhere to the repayment plan.

5. Clearance

Once all debts included in the repayment plan have been paid in full, the individual receives a clearance certificate from their debt counsellor, and you will be debt-free.

Debt review allows you to get out of debt in an affordable manner. This means you will no longer be able to take out further credit until you have exited the process. You can exit the process once you have paid off all your debt or if you can prove your situation has changed and you are no longer over-indebted. You will receive a clearance certificate and the debt review flag will be removed from your credit report. Your credit score will reset to zero. You have a fresh start at building your credit profile again, on a clean slate.

The process provides a safer alternative to getting a judgement on your name or being sequestrated and surrendering your assets if you are unable to pay. These alternatives should be considered a last resort option, as it has serious long-term consequences for your credit score and financial future.

If you are over-indebted, you can approach a debt counsellor to assist you in legally reducing your monthly instalments through debt review. Your debt counsellor must be registered with the National Credit Regulator (NCR), such as Debt Rescue.

Do you need debt review?

Debt Rescue urges all consumers to spend, save and pay back their debts wisely. However, you may be past the point of being able to pay back your debts by yourself.

There are several signs that may indicate that you are over-indebted.

  • You’re struggling to make minimum payments on your debts

If you’re finding it difficult to make the minimum monthly payments on your credit cards, loans, or other debts, it could be a sign that you’re over-indebted.

  • You’re using credit to pay for daily expenses

If you’re using credit cards or loans to pay for essential expenses like groceries, rent, or utility bills, it may be a sign that your income is not sufficient to cover your expenses and you are relying too heavily on credit.

  • You’re frequently paying bills late

If you’re frequently missing payment deadlines, it could be a sign that you’re struggling to keep up with your bills and may be over-indebted.

  • You’re constantly being contacted by debt collectors

If you’re receiving frequent calls or letters from debt collectors, it’s a clear sign that you have fallen behind on your payments and may be over-indebted.

  • Your debt-to-income ratio is high

If your monthly debt payments are a large percentage of your monthly income, it may be an indication that you’re over-indebted.

If you’re experiencing any of these signs, it’s essential to take action to address your debt and get your finances back on track. You may want to consider seeking help from a financial counselor.

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