What you need to know about debt review

how debt review works

Lockdowns of businesses caused by a global pandemic coupled with economic instability has led South Africans to be more familiar with debt than they would have liked. Fearing blacklisting and repossessions, many consumers have opted to go the route of debt reviews. But many people are still unsure about who the process is for, what it entails and if there are any legal implications. Read on as Mbebe Fuba Marais Inc. delves into the ins-and-outs of the debt review process.

What is debt review?

The debt review process was formed in 2007 by the National Credit Act to prevent consumers from becoming blacklisted. This lifeline offers much needed reprieve for people who were bogged down by financial instability. Be it car instalments, credit card payments or mortgages, a debt review takes a holistic approach to finances to find the best solution.

How does debt review work?

Step 1:

A person must apply to qualify for a debt review. A debt review calculator can be used to determine whether an application for debt review is necessary.

Step 2:

Once necessity has been established, a debt counsellor is assigned. These professionals are registered with the National Credit Regulator and are obligated to follow stringent ethical guidelines. Firms such as Mbebe Fuba Marais Inc. also offer legal representatives who will appear on debt review applications and section 65 hearings. The client’s financial history including income, expenses, loan agreements, creditors’ information, clothing accounts, bills in arrears and more is documented.

Step 3:

Once this information has been tallied, the National Credit Bureau will be informed that the client is under debt review. This is when a person is placed in the NCR’s debt help database. Credit bureaus are informed of a client’s status to prevent further credit being incurred.

Step 4:

A debt counsellor will look at what a client earns versus how much debt has been incurred and needs to be paid every month. After getting a full sense of their financial state, the debt counsellor will begin working on a structured repayment plan. Negotiations will be made with creditors and they will be informed of the repayment plan.

Step 5:

Repayment plans need to be approved by creditors, after which the client is referred to the National Consumer Tribunal for a Consent Order. Once all parties approve the repayment proposal, the client can begin paying. All payments are made through a Payment Distribution Agent.

Benefits of debt review

Repayment plans will often have a reduction of up to 50% Once under debt review, if payments are being made correctly, clients are immune to legal action being taken by creditors in connection with monies owed. Many clients enjoy the ease of mind that comes with having a professional handle their finances. Furthermore, the process makes it so clients no longer have to deal with the stress of directly communicating with creditors. With a structured repayment plan, people have a clear exit date. This clear goal can be all the motivation needed to pay.

A client cannot qualify for a loan or bank services while under debt review. While they will be flagged, they are not blacklisted. This restriction is for their own good because it means debt consolidation will be reached faster. Unlike blacklisting, debt review will not stay on the permanent record.

How long does debt review last?

For many South Africans, debt review can be a salvation while others are understandably apprehensive. As mentioned above, the process does come with its caveats and restrictions. Therefore, many people want to know how long the process takes.

The simple answer is 3 to 6 years. The realistic answer is that it is a case-by-case situation. All consumers’ financial woes are different and so will be their repayment plans. There are many factors that influence the length of the process, including but not limited to:

  • The initial amount of debt
  • Salary or wages, which affect how much can be set aside for repayment
  • Interest rates from creditors
  • If payments are made timeously
  • Any changes in financial situation during the process (whether it is losing or gaining money)
  • The plan the debt counsellor was able to negotiate

For those who are wary about the time spent in this fiscal limbo, there are ways to expedite the process. Firstly, it is imperative to remain committed to the repayment plan. Missing payments is a sure-fire way to fall behind, thus lengthening the process. Remain committed and stick to the schedule drawn up by the debt counsellor. Tighten the belt and forgo previous luxuries. A bout of austerity is a small price to pay for a lifetime of being debt free once creditors have been paid off. Extra monies such as salary bonuses or gifts should be used to supplement the repayment plan. Utilise the debt snowball method by paying off smaller debts first and getting those out the way.

No matter how big or small, debt is always a frightening position to be in. Debt review can be a much-needed lifeline to keep many families afloat in these trying times. Peace of mind can be granted from knowing that there is a way out. Being legally protected from creditors is an upside, but the restrictions must also be noted. Talk to a member of Mbebe Fuba Marais Inc. to find out more.