Learn About Debt Review
Learn about debt review, what it is and exactly how the review process works and also how debt counselling companies in South Africa can help you.
Over-indebted, stressed, need help? Well there is a way out. Debt review might be a good option, but what exactly does it mean? What are the criteria used to decide if you actually are in need of debt rescue?
You hear about companies that offer review services in South Africa, you might even know friends or family who have undergone the process of review and debt consolidation, but do you really know what they are talking about.
In this step by step how to guide, we will tell you exactly what debt review and debt consolidation means and how the debt review process works as well as how you can connect with a professional debt review company in South Africa to either learn more or kick off the process.
Overcome by debt? Have you considered debt review?
But what does that mean! 4 important debt counselling definitions you need to know about
Important terms used when talking about debt counselling or review are defined by the South African National Credit Regulator(NCR)’s National Credit Act(NCA), as follows:
“Debt review – it is a process whereby a consumer’s credit agreements are combined in order to assess and establish whether the consumer can afford the monthly repayments.” The process in terms of the National Credit Act is applied to over-indebted consumers with the main purpose of the act being to protect the over-indebted consumer from credit providers. Debt counselling usually commences when a consumer approaches a debt review company and meets with a debt counsellor .
“Debt Counselling: The process of assessing over indebtedness and restructuring debt.” When it comes to debt counselling, it really says what it means. A debt counsellor will sit with you with the intention of re-jigging your personal finances and debt obligations if you cannot pay your debts. If you meet the criteria for debt counselling (which we will explain later on in our the step by step guide) the counsellor will then contact your credit-providers to negotiate the restructuring of your debt obligations with them. The main purpose of debt counselling according to the NCR is to “assist consumers in meeting their debt commitments”. An ever growing number of consumers are seeking debt counselling and it brings with it many more advantages than disadvantages.
“Debt Counsellor: A person registered with the NCR as a Debt Counsellor and assisting consumers with debt restructuring;” According to the NCR, the National Credit Act makes provision for debt counsellors who have complied with all the provisions of The Act to “conduct independent enquiries into consumers’ financial circumstances and make recommendations to the courts concerning debt restructuring and suspension of reckless credit agreements.” This is the person who actually helps you to be put under debt counselling and they will be with you every step of the way if you keep up your end of the agreement. They are in a sense your champion, and state your case with credit providers and also safeguard you from them, while negotiating repayment options. They also arrange repayment on your behalf.
“Consolidation loan: A loan taken by a consumer for the purpose of bringing all his/her debt together as a single loan with a view to settling it.” This puzzles some people. How can you take a loan while under debt counselling? The fact remains that a person can no longer get access to new credit, in the way they used to before the process of debt rescue was started . A debt consolidation loan is the only credit a consumer involved in the review process can actually apply for.
Now you know the main definitions of debt counselling, we can get to the exciting part!
A step by step guide to how the debt review process works
1 – Find a debt counsellor. But what will a debt counsellor do for me?
Approach a debt counsellor and find out if you qualify for debt counselling and whether you should be placed under review. You can search for qualified debt counsellors who are all listed in the National Credit Regulators web portal.
The councellor will help you crunch numbers when it comes to your personal income. Together you will create a budget, of your incoming and outgoing expenses and with that, the surplus of income that can be paid to creditors can be uncovered. When seeing a debt counsellor, you will need to provide your payslip, your ID document, all your monthly repayments and your own honest and factual monthly budget that reflect your monthly expenses.
According to the NCA: ”Debt counsellors also assist consumers with basic financial planning skills, such as drawing up a budget. Although a consumer has the right to apply for debt restructuring, this does not mean that he /she will automatically qualify for the service. After assessing the consumer’s financial status, a debt counsellor may conclude that the consumer is not over-indebted. The debt counsellor must then issue the consumer with a letter of rejection.”
2 – Make the decision before it’s too late. Are you eligible for debt review?
You might ask yourself if you are really in need of review, and if you even qualify. To help you make the decision, the NCA has some guidelines. The NCA states that “if the Debt Counsellor has completed an assessment and has reached a conclusion that a consumer will not be able to meet his/her debt commitments at the end of a month, that consumer is over indebted.” Being classed as being over indebted means that you are eligible for review and the debt restructuring process can commence.
So how do you know you’re in too deep with your debt already? Well, first off, you will be struggling to keep up payments. Secondly your expenses will exceed your income with little left for you live on. Being over-indebted is actually a legal term which means that after deducting your living expenses from your net salary you don’t have the funds left over to pay instalments. You might be on your way towards becoming over indebted and being placed under review if you take out more credit to pay off current debts, when creditors are constantly on your case, and you pay more urgent accounts before others.
Some consumers don’t even have the luxury of making the decision to be placed under review, they are forced.
There are three ways in which a consumer can access debt counselling services, the first being voluntary as discussed above.
Secondly, some consumers are referred for review by their credit providers, something which the NCA requires credit providers to do prior to taking legal action against you. According to the NCR, “One of these steps includes giving a consumer written notice to the consumer to inform him/her that he/she is in default. The notice must also inform the consumer that he/she has the right to approach a Debt Counsellor to ask for assistance.”
The third option is being referred by the court. The decision to refer a person to a debt counsellor by court order is usually taken when a person who seems to be over-indebted appears in court.
Did you know that some people may not actually be officially classed as “over-Indebted” and these people do not qualify for review. The debt counsellor will still assist you though even if you don’t qualify, by helping you work out an improved and restructured monthly budget, which will enable you to pay your creditors in the long term. So whether you qualify or not, if you are worried about your debt or spending, it is a wise move to see a debt counsellor as soon as possible.
3 – Start the process, and understand the costs of debt review, debt restructuring and penalty fees if you withdraw from the debt review process.
So what will I be charged for in terms of debt review fees?
This is also when you need to whip out your wallet. Ask your debt councellor for a run down of the costs the debt counselling process, which consists of the following costs according to Finance24 :
– an application fee;
– a rejection fee (to weed out frivolous applications);
– a restructuring fee;
– a small monthly fee;
– a legal fee that is needed for the consent order in the second month; and
– a fee if you withdraw from the process later on.
4 – Your debt counsellor contacts credit providers and payment negotiations start, a process called debt restructuring
Once the councilor has confirmed that you are officially over-indebted, and a logical budget has been drawn up that takes into consideration your living expenses and the amount of debt you still need to repay, the debt councilor can officially apply to have you placed under debt review. The debt counsellor will then notify credit providers and credit bureaus via a Form 17.1.
Any debt counsellor will have to submit a Form 17.1m to all your credit providers and they have to do this within five weekdays (excluding public holidays) from the date of your application, in order for you to be placed under review. Your credit providers then have to provide “a certificate of balance to the debt counsellor within 5 business days after receipt of the Form 17.1,” according to First National Bank.
Some fact checking between the debt councellors and credit providers may occur, like that all amounts you stated as outstanding are correct. You will then be listed as being under debt counseling, and this is a good thing and not all to be confused with being Blacklisted.
Evidence of being listed as being under debt counseling will be completely removed once a person completes the review process successfully. Credit providers have to agree with the terms from you and your debt counsellor whereupon a consent order will be obtained which binds credit providers to the terms of a final repayment agreement and ensures that they take no further steps against you.
In some cases credit providers challenge the repayment terms all the way to the courts, but as long as a debt councellor sets up a reasonable repayment plan, the repayment terms will be approved by a court.
5 – Consumer commits to finalised repayment plan which is submitted.
Will you be able to commit to paying off your debts?
The plan is submitted to the Payment Distribution Agency for Payment Distribution. According to FNB ,“A Payment Distribution Agent distributes funds in terms of the payment plan (or debt rearrangement order when granted) to credit providers.” A lump sum of your income will be taken by the agency which will divide it to repay credit providers according to the repayment plan.
6 – You pay what you agreed to pay, or face the consequences
You need to make sure that you stick to the plan. According to the NCA, “A consumer who fails to pay in terms of a restructuring agreement will immediately be removed from the review process and the credit providers may immediately take legal action against the consumer.”
7 – A Clearance Certificate is issued after debt has been settled
According to the NCA, “A consumer who has settled all his/her debt in terms of a debt restructuring must receive a “Clearance Certificate” from the debt counsellor. This certificate will allow the consumer to have his/her credit record that is held by a credit bureau, cleared.”
This means you will be taken off from all Consumer Credit Bureau Data Bases on which you were listed as being under debt review. According to the NCA, “Should a debt counsellor refuse to give the consumer the certificate he/she can approach the Tribunal to review the decision of the debt counsellor.”