Debt review is a process that is becoming increasingly popular in South Africa, as more and more people struggle with overwhelming financial burdens. It is a debt relief program that aims to help individuals who are struggling to make their monthly payments and are at risk of falling into default. In this article, we will take a closer look at debt review in South Africa and provide a comprehensive understanding of what it entails. Whether you are considering debt review for yourself or simply want to learn more about this process, this article will serve as a valuable resource.
So, let's dive in and explore what debt review is all about. Debt review is a debt relief option that was introduced by the National Credit Act (NCA) in 2007 to help individuals who are over-indebted. It is a formal process that aims to assist individuals in restructuring their debt repayments to make them more manageable. This process can be a lifesaver for those who are struggling to make their monthly debt payments and are at risk of falling further into debt. To be eligible for debt review, you must meet certain criteria. The first requirement is that you must be struggling to meet your monthly debt repayments.
This means that you are unable to pay your debts on time and in full each month, and as a result, you are falling behind on your payments. The second eligibility requirement is that you must have a regular income. This is important because it shows that you have the means to make reduced debt payments each month under a debt review plan. In addition, you must owe money to at least two credit providers. This means that you have taken out loans or credit from at least two different institutions, and you owe them money. This includes things like credit cards, personal loans, car loans, and store accounts. Lastly, your total debt must not exceed R50,000.
This is the maximum amount of debt that can be included in a debt review plan. If your total debt exceeds this amount, you may need to explore other debt relief options. It is important to note that not all types of debt can be included in debt review. Debts like child support, fines, and taxes cannot be included. This means that you will still need to make separate payments for these types of debts while under debt review. Now that we have covered the eligibility criteria for debt review, let's take a closer look at the process.
Debt review is a formal and legal process that must be carried out by a registered debt counsellor. The first step is to consult with a debt counsellor who will assess your financial situation and determine if you are eligible for debt review. If you are eligible, the debt counsellor will then inform all of your credit providers that you are under debt review. They will also negotiate with your credit providers to reduce your monthly debt payments and interest rates. This is done through a court order known as a debt restructuring order. Once the debt restructuring order is in place, you will make one reduced monthly payment to a Payment Distribution Agency (PDA), which will then distribute the funds to your credit providers.
This makes it easier to manage your debts as you only have to make one payment each month instead of multiple payments to different credit providers. It is also worth noting that debt review is different from other debt relief options like debt consolidation. Debt consolidation involves taking out a new loan to pay off all of your existing debts, whereas debt review aims to restructure your current debts to make them more manageable. While there are fees involved in debt review, they are regulated by the NCA and cannot exceed a certain amount. These fees include an application fee, a restructuring fee, and a monthly after-care fee. Your debt counsellor will provide you with a breakdown of these fees and they should be included in your monthly repayment plan. In terms of the legal aspects, being under debt review provides you with legal protection against legal action from your credit providers.
This means that while under debt review, your credit providers cannot take any legal action against you for outstanding debts. In conclusion, if you are struggling with overwhelming debt, debt review may be a viable option for you. By meeting the eligibility criteria and going through the process with a registered debt counsellor, you can reduce your monthly debt payments, avoid legal action from your credit providers, and work towards becoming debt-free. However, it is important to carefully consider all of your options and seek professional advice before making any decisions about your debts.
Debt Review vs Debt Consolidation
Many people confuse debt review with debt consolidation, but they are two different options. Debt consolidation involves combining all your debts into one loan with a lower interest rate.On the other hand, debt review is a formal process that involves renegotiating your existing debt repayments to make them more manageable. One of the main advantages of debt review is that it offers legal protection from your credit providers, whereas debt consolidation does not.
Legal Aspects of Debt Review
Under debt review, you are protected from legal action by your credit providers as long as you stick to the agreed-upon repayment plan. However, if you miss payments or default on your debt review plan, your credit providers can take legal action against you. It is important to communicate with your debt counsellor if you are facing financial difficulties so they can assist you in finding a solution.The Debt Review Process
To be eligible for debt review, you must first approach a registered debt counsellor who will assess your financial situation and determine if you are over-indebted.If you meet the eligibility criteria, the debt counsellor will then negotiate with your credit providers on your behalf to lower your monthly repayments and interest rates. This process may take up to 60 days, during which time your credit providers cannot take any legal action against you. Once the negotiations are complete, you will be placed under debt review and will make one monthly payment to a Payment Distribution Agency (PDA), who will then distribute the funds to your credit providers.
Fees Involved in Debt Review
When considering debt review as an option for managing your debts, it is important to understand the fees involved in the process. These fees are regulated by the National Credit Act (NCA) to protect consumers from exploitation by debt review companies. The first fee you will encounter is the application fee, which covers the administrative costs of processing your debt review application. This fee cannot exceed R50 and is non-refundable. The second fee is the debt counselling fee, which is charged by the debt counsellor for their services in helping you manage your debts.This fee is calculated according to a prescribed formula and cannot exceed R6,000. Finally, there is a restructuring fee, which is charged by the payment distribution agency (PDA) for administering your repayment plan. This fee cannot exceed R750. It is important to note that the total amount of fees charged for debt review cannot exceed R8,000. These fees can be included in your monthly repayment plan, making it easier for you to manage your finances. Debt review is a viable option for individuals who are struggling with overwhelming debt and meet the eligibility criteria. It offers legal protection and can help you restructure your debt repayments to make them more manageable.
However, it is important to carefully consider all options before making a decision and to work closely with a registered debt counsellor throughout the process.
