Debt review is a valuable process for those struggling with debt in South Africa. It offers legal protection, reduced monthly payments, and a structured path to financial recovery. However, it’s not without its challenges, including its impact on your credit record and lifestyle.
Dealing with debt can be challenging, especially when you’re considering options like debt review. To help you understand this process better, we’ve created a comprehensive guide that covers everything, from understanding what debt review is, to its benefits, the assessment process, and much more.
You can choose to read the entire guide or jump directly to the sections that interest you the most.
Simply click on any topic in the table of contents below to get started.
Table of Contents
What is Debt Review in South Africa?
Debt review, also known as debt counselling, is a legal process established by the National Credit Act (NCA) in 2007 to assist South Africans who are over-indebted.
It helps to prevent over-indebted consumers from being blacklisted and having to deal with the consequences thereof.
The National Credit Regulator (NCR) has provided guidelines for debt counsellors to follow when assessing whether a consumer is over-indebted and eligible for debt review.Â
These guidelines take into account the consumer’s income, expenses, and financial obligations to determine whether they have sufficient funds to cover their living expenses while also servicing their financial obligations.
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The History of Debt ReviewÂ
A Fresh Start for South Africans
The journey of debt review in South Africa began with the National Credit Act (NCA) of 2007. This important piece of legislation was introduced to protect people from drowning in debt and falling prey to unethical lending practices. More than just a legal change, it represented a turning point for consumers, giving them a fairer chance at managing their finances. Debt review emerged from this act as a rehabilitation program designed to help individuals manage their financial obligations. It offered legal protection, restructured debts, and negotiated lower payments with creditors, ensuring that lending and borrowing practices became more ethical and fair.
Moving Beyond the Usury Act
Before the NCA, the Usury Act and Credit Agreements Act were in place, but they didn’t offer much protection for the average person. Consumers often found themselves tied to complex credit agreements full of jargon that was hard to understand. As a result, many were stuck in unfair deals without the knowledge to protect themselves. The NCA changed that, creating a more open and fair credit system, where transparency and consumer protection took center stage.
A Helping Hand for Millions
Millions of South Africans have found support through debt review, easing the burden of overwhelming dues. It’s not just about restructuring payments. It’s about offering people a real chance to regain control of their finances and to move forward. Debt review provides the support and protection needed to overcome financial difficulties.
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Key Features of Debt Review
- Debt Assessment: A debt counsellor will assess your financial situation to determine if you are over-indebted.
- Debt Reorganisation: Your debts are reorganised into a single, reduced monthly payment plan that is more affordable.
- Protection from Creditors: Once under debt review, you are protected from legal action by creditors, provided you comply with the new payment plan.
- Rehabilitation: The goal is to rehabilitate your financial situation so that you can eventually exit the debt review process, having achieved financial freedom.
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Who Qualifies for Debt Review?
To qualify, it is essential that you have a reliable source of income.Â
This can include:
- Employment wages
- Spousal or family support
- Self-employment earnings
- Retrenchment benefits
The objective is to ensure that there is a steady income stream that can support your reduced monthly repayment after covering all living expenses.
Marital ConsiderationsÂ
1)Â Married in Community of Property
- If you are married in community of property, both spouses must jointly participate in the debt review process. This inclusion is mandatory, as the financial dealings affect both parties equally.
2) Unmarried or Married Out of Community of Property
- For those who are unmarried or married out of community of property but share joint assets like a home, it is highly recommended that both partners engage in the debt review process. If only one partner partakes, certain debts, such as a home loan, may not be included. This exclusion could mean missing out on potential benefits like locked interest rates and instalments on those specific debts.
Financial Viability
- For a successful application, your total living expenses must not exceed your income. There must be a sufficient balance of income remaining after covering living expenses to meet the newly negotiated repayment plan. This ensures that the payment plan is sustainable and lasts no longer than 3 -5 years before the individual can exit the process, debt free.
Banking Requirements
- Applicants must possess a valid South African bank account where their salary is deposited. Bank statements or a salary payslip are required as part of the application process to verify income and to outline personal expenses, which helps in crafting an affordable repayment plan.
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What Does a Debt Counsellor Do?Â
Debt counsellors play a crucial role in the debt review process. They:
- Assess your financial situation.
- Negotiate with creditors to possibly reduce interest rates and extend repayment terms.
- Develop a manageable repayment plan.
- Provide ongoing support and guidance throughout the debt review process.
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What is a Debt Review Assessment?
A Debt Review Assessment is when a certified debt counsellor reviews your financial situation, including your income, expenses, and all outstanding debt. This assessment helps to determine if you qualify for debt review.
How Does the Free Debt Review Assessment Work?Â
Initial Assessment:Â
The process begins with a comprehensive financial assessment. A registered debt counsellor will review your financial situation, including your income, expenses, and outstanding dues. This helps them to understand your unique circumstances and determine whether you qualify for debt review.
Debt Restructuring Proposal:Â
Once the debt counsellor has a clear picture of your finances, they will develop a tailored debt restructuring proposal. This proposal outlines a new payment plan that reduces your monthly repayments to an affordable level. It may involve extending the repayment terms or renegotiating interest rates with your creditors.
Negotiation with Creditors:Â
The debt counsellor will then negotiate with your creditors on your behalf. Their aim is to get them to accept the proposed payment plan. This step is crucial as it ensures that your creditors agree to the new terms, providing you with legal protection against any further action.
Court Approval:
After reaching an agreement with your creditors, the new payment plan is submitted to the court for approval. Once the court approves the plan, it becomes legally binding for all parties involved. This means that your creditors cannot take any further legal action against you as long as you adhere to the new payment terms.
Monthly Payments:Â
Under the new agreement, you’ll make a single, consolidated monthly payment to a Payment Distribution Agency (PDA). The PDA will distribute these funds to your creditors according to the approved plan. This simplifies your payment process and ensures that your debts are being paid off consistently.
Regular Reviews:Â
Throughout the debt review process, the counsellor will regularly review your financial situation to ensure that the payment plan remains suitable. If your financial circumstances change, they can adjust the plan accordingly.
 A free debt review assessment can provide clarity and help you make an informed decision about your financial future.
Benefits of the Free Debt Review Assessment:
- Clarity on Your Financial Situation: The assessment provides a clear understanding of your financial status.
- No Obligation: The assessment is free and does not obligate you to enter debt review unless you choose to.
- Expert Guidance: You receive professional advice on the best course of action for managing your debt.
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What Are the Advantages and Disadvantages of Debt Review?
Debt review offers a range of benefits, but it’s also important to understand the potential drawbacks.
Advantages of Debt Review:
- Creditors can’t harass you
- One reduced monthly debt repayment
- Protection from legal action
- Your assets are protected
Disadvantages of Debt Review:Â
- You may not qualify for debt review
- You must be a South African citizen
- You must be over-indebted
- You must be unable to meet all your financial obligations on time
- You or your spouse must have a steady income
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5 Signs that you might need Debt Review
1. You’re struggling to make minimum payments on your debts
If you’re finding it difficult to make the minimum monthly payments on your credit cards, loans, or other debts, it could be a sign that you’re over-indebted.
2. You’re using credit to pay for daily expenses
If you’re using credit cards or loans to pay for essential expenses like groceries, rent, or utility bills, it may be a sign that your income is not sufficient to cover your expenses and you are relying too heavily on credit.
3. You’re frequently paying bills late
If you’re frequently missing payment deadlines, it could be a sign that you’re struggling to keep up with your bills and may be over-indebted.
4. You’re constantly being contacted by debt collectors
If you’re receiving frequent calls or letters from debt collectors, it’s a clear sign that you have fallen behind on your payments and may be over-indebted.
5. Your debt-to-income ratio is high
If your monthly debt payments are a large percentage of your monthly income, it may be an indication that you’re over-indebted.
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How can we Help You?Â
Are you overwhelmed by debt and unsure where to turn? A free assessment can give you a clear understanding of your financial situation and help you find a way forward.
Take the first step toward financial relief without delay.Â
Contact Debt Rescue today for a no-obligation Free Debt Review Assessment.
