Debt review, also called debt counselling, is a financial lifeline for many individuals who find themselves struggling to service their debt and make ends meet. It's a structured and regulated process that helps consumers manage and eventually eradicate their debt burdens. The National Credit Act (NCA) introduced debt counselling in 2005. Since 2009, Debt Sage has been helping consumers become debt-free by taking advantage of debt counselling. Below, we explore the significant benefits of debt review and how it can be a game-changer for those seeking financial stability and a path to debt-free living.
Advantages of Debt Counselling
1. Debt Consolidation: Simplified Payments
One of the primary benefits of debt review is the consolidation of multiple debts into a single, manageable monthly instalment. This means you don't need to juggle various due dates, interest rates, and payment amounts. Debt review allows you to consolidate your debt with another loan, e.g. a debt consolidation loan. Here is how debt review compares to a debt consolidation loan.
2. Legal Protection from Creditors
When you enter debt review, you gain legal protection against creditors' harassment, legal actions, and repossessions. The debt counsellor approaches the magistrate's courts on your behalf to obtain a court order which makes binding the debt restructuring plan that was negotiated with your credit providers. This stops any repossession activity from credit providers, lawyers or debt collectors demanding payment. The court order provides peace of mind, allowing you to focus on the journey to debt recovery without constant pressure from creditors.
3. Financial Education
A good debt counsellor will help you change your money habits, nudging you to change your mindset about money and credit for the better. This has tremendous benefits in the long run. Part of developing a new relationship to money is to not take on further debt while you are under debt counselling. Financial education and counselling equip you with the knowledge and tools needed to make sound financial decisions and avoid future debt troubles.
4. Lower Interest Rates
When you enter debt review, your debt counsellor negotiates with your credit providers to lower the interest rates on your debts. Interest is usually a significant portion of your repayments, so when it's reduced, more of your money goes towards paying off the principal balance, helping you become debt-free quicker. The restructuring plan involves reevaluating and reducing interest rates with credit providers. This benefits the consumer from the savings on previously higher interest rates and charges. Interest rates for credit cards, retail/store cards/personal loans can be reduced to as low as 3-5%.
5. Flexibility
One of the benefits of debit review is flexibility. If you come into extra money, e.g. an inheritance, you can pay off your debt and subsequently exit debt review. You can also increase your monthly repayment amount. This implies that during the period your financial situation is difficult, you can make lower monthly instalments negotiated by your debt counsellor and then pay additional amounts when your finances improve. This allows you to pay off debt sooner and exit debt review quicker.
6. No Permanent Flag on your Credit Record
The consumer is flagged under debt counselling but there is no permanent record of having undergone debt counselling with the credit bureaus once you complete debt review. When the debt counsellor has issued the consumer’s clearance certificate, the consumer's record with credit bureaus is expunged. In terms of the National Credit Act 34 of 2005, a debt counselling order reflects on one’s credit report within the period prescribed in section 71(1) of the Act or until a clearance certificate is issued.
7. Debt Elimination Focus
You cannot apply for new credit while under debt counselling. When you are over-indebted, it is critical that you stop borrowing and focus on eliminating your debt. This is the only way one can be rehabilitated when faced with huge debt. Debt counselling gives you that focus. Once a consumer has finished paying off their debt, a debt counsellor issues them with a clearance certificate, signifying that they have satisfied all their obligations under debt counselling. The consumer's "under debt review" flag is then removed and they are able to apply for new credit.
8. A Clear Path to Becoming Debt-Free
The ultimate benefit of debt review is the opportunity to become debt-free. By consistently following the repayment plan and managing your finances more wisely, with the help of your debt counsellor, you'll see your debt shrinking. This can be a source of immense relief and motivation, knowing that you're on a path to financial freedom
9. Affordable Monthly Payments
One of the most immediate and tangible benefits of debt review is that it results in affordable monthly payments. The process is customised to your financial situation, ensuring that you are left with enough money to cover your essential living expenses.
10. Extended Repayment Terms
To make monthly payments more affordable, your debt counsellor will negotiate extended repayment terms with your creditors. This does mean that you'll be in debt for a longer period, but it also significantly reduces the monthly financial strain, making it easier to manage your cash flow. The debt repayment terms are usually extended to a period of up to 60 months. Read more about how long you will stay on debt review.
Disadvantages of Debt Review
There are disadvantages to applying for debt counselling and you need to be clear-eyed about these, to make sure they don't apply to you.
1. New Credit Agreements are Blocked
In terms of section 88(1) of the National Credit Act No. 34 of 2005, you must not enter into any further credit agreement whilst under debt review. Having said that, as we discuss above, one's focus when they are over-indebted should be on eliminating debt rather than accumulating more debt.
2. Debt Review can be Terminated by Missed Payments
If the consumer misses their monthly payments while under debt counselling, credit providers may terminate the debt review agreement and institute legal action. The consumer must stick to the amount that was agreed to on the court order. If you're worried about missing a payment, reach out to your debt counsellor as soon as possible to discuss options.
3. Not All Debts are Covered
Not all accounts can be accepted on debt review. If there is a judgment (summons) on a home loan or motor vehicle, accounts cannot be included under debt counselling. Furthermore, you cannot include debts arising from unpaid levies, school fees, municipal levies etc. These are debts that no credit agreement was entered into originally.
4. A Court Order cannot be Rescinded
Once a debt review court order has been obtained, i.e. the debt review process has been started, a consumer cannot terminate or withdraw from debt counselling until all debt is paid as per court order.
5. Dual Application when Married within Community of Property (CoP)
If you are married in CoP and your partner wants to apply for debt review, you both have to apply. Being married in CoP means you and your partner are accountable for each other's debts, accumulated during your marriage.
6. Extended Repayment Terms
You might take longer to pay off your debt due to paying lower monthly instalments, as negotiated with your credit providers on your behalf by your debt counsellor. The goal is to make your repayments sustainable. If your finances improve while under debt review, it's important to increase payments, so you can exit debt review earlier.
7. There are Fees
Your debt counsellor will charge fees for guiding you through the process. However, these are tightly regulated by the National Credit Regulator and your debt counsellor must be upfront and transparent about their fees.
In Conclusion
If you are deep in debt, the advantages of debt review far outweigh the disadvantages. Debt review is a powerful tool for individuals facing overwhelming debt. Its benefits extend beyond just easing the immediate burden of monthly payments; it offers a structured path to financial recovery and a debt-free future. If you find yourself struggling with debt, consider reaching out to Debt Sage to explore how we can help you regain control of your finances and build a more secure financial future. Remember, financial freedom is within reach with the right approach and commitment to managing your debt responsibly.