Advantages and Disadvantages of a Debt Review
As almost everything in life will have it, we must always consider the good and the bad, and whether certain avenues are the right ones for us to go down. Being in debt is a draining and stressful state of being for anyone, so before jumping into any one solution to quickly correct your poor credit habits, familiarise yourself with the advantages and disadvantages down below to understand the ins and outs of going under debt review
Advantages of a Debt Review
- The most attractive advantage of going under debt review – should you qualify as over-indebted – is that your assets are protected under the NCA, and therefore immune to repossession by any of your credit providers. You will be protected from any legal action creditors may take against you for the first 60 business days of your application. This is while your debt counsellor structures an affordable repayment plan to lead you gradually closer towards debt-free living.
- Your counsellor acts as a middleman/woman, meaning that you won’t have to deal directly with your creditors at all, nor will you be needed to attend court hearings.
- Your reputable debt counsellor is able to negotiate interest rates with your credit providers, lessening the pressure and financial strain on you along the debt review journey.
- Your debt counsellor will arrange an affordable and structured repayment plan, along with reduced interest rates, with all of your debts combined into one fixed amount agreed upon by all parties to be paid monthly over a set period of time.
- The maximum amount of time you can be under debt review is 5 years.
- Should you come into money during your debt review, you are able to increase your monthly payments to get out of debt review within a shorter time frame, sometimes as short as 2-3 years instead of 5.
- Being under debt review is designed to be an affordable option for you – your monthly payment should be reasonable and still allow for you to manage your necessary day-to-day expenses, making the process applicable to all. There is also no limit to the debt that can be declared, making it an option for anyone who is over-indebted.
- Debt counselling offers budget and money managing guidance to ensure you are able to take back control of your finances and better understand and manage the relationship you have with credit, over cash. The goal of the debt review process is to rehabilitate you, provided you see it through to the end.
- Once you have repaid all of your debts, you will receive your clearance certificate, and your name will be unflagged on all registered credit bureau systems, allowing you to rebuild your credit again.
- Debt review has no memory; going under debt review is not a black mark on your credit score. If anything it is a plus as it shows regular payments over time and a proactive, sustained effort to deal with your indebtedness, which increases your worthiness for credit in the future. Ignore your debt, and you could end up with a judgement on your record lasting 30 years.
Disadvantages of a Debt Review
- The most notable disadvantage of going under debt review is that you cannot apply for credit while under review. Once you have signed Form 16, you are officially under review and according to the debt review process you will be flagged as being over-indebted and under review on all registered credit bureaus, preventing further access to credit. This means leaving behind your credit cards, store cards and no more loans. Once you are cleared you will be able to access credit once again. It is imperative that you are aware when it is that you are officially under review; do not sign anything if you are unsure, this includes e-signatures that are easily and quickly used.
- You may not qualify for debt review; only South Africans who are confirmed to be over-indebted, and who have a monthly income will be able to apply, so if you are over-indebted and unemployed this will be an issue for you when seeking help from a debt counsellor.
- The only way you can exit your debt review is to settle all of your debts as agreed upon with your debt counsellor and credit providers, or by producing a confirmed application to court stating that you are no longer indebted.
- Under the debt review process, you are obligated to repay the debt owed under your debt review agreement without default. This requires dedication and perseverance to be able to enjoy the advantages of being under debt review, including the protection that the industry offers against creditor harassment. To decrease your monthly payments, your counsellor will negotiate on your behalf and your payment period may be extended so that it is realistic for you; defaulting means potential legal action so if you can sustain a level of proactivity and dedication throughout the process, you will reap the benefits.
- If you are married under a community of property then both you and your spouse will be placed under debt review as a unit, both being responsible for being over-indebted.
- Be on a keen look out for exploitative and corrupt debt review companies, especially when they open with a promise to simply quash all your debt in record time, and allow for ‘easy exits’ out of debt review when convenient. While debt review has over time become a more reliable process, there are still bad apples in the industry of which to be wary.
- Choosing the wrong debt counsellor can be financially catastrophic and prevent you from experiencing all of the benefits of going under debt review, and even land you in further trouble regarding your finances down the line. Ensure you do your research to find a reputable counsellor with good experience in the industry. These days it is easy to do background checks; take a look on social media platforms, ask questions on reputable debt counselling website forums, check Google Reviews or Ask Peter to investigate your counsellor’s competence and reputation. Your debt counsellor must be a member of the Debt Counsellors Association of South Africa (DCASA) and/or the National Debt Counsellors Association (NDCA). The National Debt Counsellors Association has the following criteria with which their counsellor members must comply:
- Work for your clients and their best interests, and not the other way around
- Respect for and use of NCR approved DCRS system
- A registered Payment Distribution Agent (PDA) is imperative to ensure funds are allocated appropriately to creditors
- Written consent from you before you embark on your debt review process
- Debt counsellors must be registered with the NCR
- Sustained consumer support and guidance and transparency
- The Debt Counselling Rules System, implemented in 2010, provides a framework of rules to which your registered counsellor should adhere. The DCRS is essentially a regulated agreement between counsellors, credit providers and the NCR. It is a red flag for consumers to watch out for should their counsellor not comply with the DCRS; consumers can spend years paying but see little impact on their debt minimizing as promised, and the counsellor is really not securing the best deal for their clients in this case. While it is recommended, the Act does not require it so some debt counsellors don’t pay it the attention you deserve! The system has been developed to see you debt-free within 5 years. Counsellors who do not abide by these guidelines can stretch your repayment period out to 7 years for example, making you pay more in the long run.
- Educate yourself on the regulated fees that go with being under debt review, they can be confirmed on the NCR Fee Guideline available on their website; unscrupulous debt counsellors might demand payment upfront, or directly to them. This is a red flag and you should refuse both of these offers. Call the NCR helpline 0860 627 627 / 011 554 2700 to make sure you are safe and within your rights.