Going under debt review is not an easy decision to make and you may have reservations about this process or even questions.
Justmoney asks resident debt expert, Luke Hirst, from DebtBusters, about what it means to go into debt review:
1. What is debt review?
It’s been around over five years and was introduced by the National Credit Act to help consumers struggling to repay debt to find a way out.
2. Once I’ve decided to get into debt review how fast will I be accepted?
This can occur relatively quickly. Once you’ve filled out the necessary documentation you can be on the programme within one to five days. Credit providers will then contact your chosen debt counsellor with the balances, and will let them know if legal action has started.
We conduct a calculation to evaluate whether the client is over indebted or not. We determine whether someone is over indebted by taking their net income and subtracting their living expenses and debt repayments. If it equals zero or less than zero we consider them over indebted. Sometimes a client may have a surplus now, but do we take things like future salary cuts into account too.
3. How long will I be under debt review for?
It depends on the amount of debt you have; the type of debt, how much you pay back each month and what arrangements can be made. However, in our experience, 90% of clients are solving within three to five years. A lot of people don’t do the calculations.
With the average interest rate up to 25% - what we are saying is that debt review reduces what the client is paying in interest. So if they weren’t under debt review they’d be taking longer to pay off debt - say between five and 10 years. Clients have to take into account what effect being in debt for longer would have on them.
4. Will the debt counsellor always be able to negotiate a lower for me?
Not always, but in a lot of cases where the client is being shown to be over indebted they are able to negotiate a lower rate. Lenders tend to reject lower rate negotiations of there isn’t much debt left or if the client is able to pay of his/her debt off in a few months. However, sometimes we can get extensions instead of rate reductions.
5. What do I do if I am unhappy with my debt counsellor?
You need to give the debt counsellor the opportunity to answer your queries or concerns and to understand what has happened. If they are not forthcoming you can take your complaint to the National Credit Regulator (NCR) www.ncr.org.za or the Debt Counsellors Association of South Africa www.dcasa.co.za.
6. Can I get out of debt review?
Yes you can. You have to send a letter to your debt counsellor in writing to say that you will no longer be using their services. Your debt counsellor should advise you of the risks.
Once you come out of a debt review though the deals that have been negotiated on your behalf by the debt counsellor will become void, which means that you will now be paying more interest and arrears could be asked for immediately from some product providers.
So what we tend to see is people getting out of debt review and then coming back in one or two months later. What they’ve usually done is just taken out another loan.
If you want to get out of debt review and apply for debt consolidation, remember that this type of loan charges an interest rate that is significantly higher than what you are paying under debt review. By reapplying for debt review you will have huge problems as many providers are preventing people from going back under debt review, particularly if they’ve started legal proceedings against you.
7. Is it still possible to get out of debt review and manage my loan repayments myself?
Yes you can. For instance if you have paid back much of you debt you may feel comfortable that you can negotiate with your lenders and repay the repayments directly. The problems arise though if you have six or more loans – it becomes quite hard to negotiate.
8. What do I pay in terms of debt review fees?
You pay 5% of the debt repayment up to maximum of R466.
9. If I am under debt review can I still apply for more loans?
No. This is because current lenders are taking concessions while you are on debt review and it would be counterintuitive for you to be able to take out loans and pay those off while you are still in debt and getting a better deal.
10. How do I know if my debt counsellor is qualified?
Around 150 – 200 debt counsellors have closed up shop over the last year so it’s important to ask your debt counsellor how long they’ve been around for and who would take over from them if they can no longer take on your case.
Ask your debt counsellor if they have a debt counselling certificate and check if it is legitimate against the NCR. Ask them how long they’ve been in existence for and what other qualifications they’ve got. You can also ask them how many staff members they’ve got, where they are based and get references from the banks and the NCR.