What is debt review?
“Debt review is a structured approach where a debt counsellor is expected to do a financial analysis and manage the consumer’s financial affairs and come up with acceptable payment arrangements on behalf of the consumer,” explains Rudolph Mahoney, who works for WesBank in research and public relations.
In simple terms being under debt review means that you are struggling financially because you can’t meet your debt repayments every month. Debt counselling enables you to repay your debt over an extended period, through paying much less interest or a debt counsellor may even be able to negotiate it in such a way that you pay reduced interest over an extended period of time.
Being under debt review does not mean that you are blacklisted. Instead it is letting lenders know that you cannot afford your instalments at the level at which they are now and that you can’t afford any more credit.
“Credit providers in most instances agree to reduce interest rate to assist indebted consumers with lower repayments. Credit providers also cannot enforce the agreements while the customer is still under debt review,” says Mahoney.
What can’t you do?
Mahoney says that you should not apply for more credit, take on non-essential expenses or use any credit, store cards and credit facilities like overdraft as those will only increase your existing balance.
First National Bank (FNB) concurs: “You may not incur any further credit while under debt review, except to consolidate existing credit agreements, and this is only [possible] with the written consent from you, your debt counsellor and the bank.”
Going through the debt counselling process is not a ‘walk in the park’, and many people want out before the process is over because of the financial and emotional sacrifices they have to make. Forget about saving. If you do have any investments then it is generally recommended that all available funds are used to repay your debt. “Any available funds in an investment account should be distributed among your creditors to reduce your overall debt,” says FNB.
If you enjoy the high life that will have to stop too. Mahoney says that you should get rid of the luxury items to afford your debt repayments. In addition you are told to avoid unnecessary holidays and use extra cash towards settling the debts. Entertaining nights out where you enjoy a few drinks at the pub or go to the movies is also not recommended.
What you should know
What you should do while under debt review is cooperate with your debt counsellor to make sure you are on track, and inform them of any changes in your finances. “If and when extra funds like bonuses are received, consider settling small debts and increase payments on other debts to try and settle other debts quicker,” says Mahoney.
Furthermore, while under debt review you can still rent a property. This is because renting a property is not a credit agreement, but you will need to talk to your debt counsellor to see how much surplus you have, explains Debt Review. You do not want to overspend, so make sure you stick to your budget.
If you do have some available assets (such as a car, furniture etc) and want to pay off your debt quicker, then you do have the option to return those assets. “Consumers can also opt to place any shortfall under debt review,” adds Mahoney. But remember to always speak to your debt counsellor, and let them know about all your assets and finances.
“Maintain communication with [your] creditors to ensure your debt review is on track. Ensure that [you] maintain the consent order instalments or the accepted debt review payment proposal,” says Mahoney.
Debt review process
Below is a summary made by Debt Review to help you understand the process better:
- If you feel you are indebted you need to contact a debt counsellor to go forward with the debt review application. You can apply for debt counselling by clicking here.
- Your debt counsellor will get you to apply for debt review by completing and signing a Form 16. You will need your ID, latest payslip as well as the latest statement from each creditor. It is very important that you provide the debt counsellor with all credit obligations and financial information.
- Your debt counsellor will then inform all creditors and credit bureaux that you have applied for debt counselling. From this stage your creditors will not be allowed to take legal action against you for the following 60 days. However, this is only valid if a creditor has not already taken legal action against you.
- The creditors will need to supply your debt counsellor with outstanding balances and initial contracts.
- The final step will be for your debt counsellor to assist you with your budget, and to determine what amount you will be able to pay ever month to your creditors. Note that in the first three months your instalments will be used to pay for the debt counsellor’s services and won’t be dedicated to paying off your debts.
If you want to find a reputable and registered debt counsellor in your area contact DCASA, or contact them to lodge a complaint against a debt counsellor. You can also get hold of Debt Review SA.