Debt Review Process, Fees & Disadvantages

Does the end of the month gallop around too quickly as the countdown to payday creeps slowly along? Are you overwhelmed by debt and not sure what to do about it? Keep reading, because South Africa has a solution in place for those struggling under the weight of overindebtedness. It’s called Debt Review.

Debt Review was introduced by the National Credit Act in 2007 and is aimed at assisting over-indebted consumers to repay obligations. The Act makes provision for a debt review process. It lays out guidelines for how to restructure your debt package to be able to better meet monthly financial obligations.

Being under debt review should not be seen as an escape route. Nor is it a legal pardon from financial obligations nor freedom from paying bills. The debt is never written off, only reorganised to make installments manageable.

Debt review is also commonly known as debt counselling. It is recommended for consumers in serious financial difficulty, who likely face legal action from multiple creditors. Debt review is not an easy or a cheap solution to a debt problem, however. It is not for the faint-hearted and requires much commitment on your part as you clear debts bit by bit.

Below are three points of interest about South Africa’s Debt Review Policy: 7 Step Debt Review Process, 10 Debt Review Fees and 5 Disadvantages of Debt Review to consider before embarking on this journey.

7 Step Debt Review Process

  1. Find a debt counsellor in the National Credit Regulator database. This contains details for all registered debt counsellors in the country.
  2. Apply for debt review by filling in Form 16. It requires provision of your ID Book, a recent payslip, credit agreements and a budget for your monthly living expenses. After presenting these documents to your chosen debt counsellor, the application will provide 60 days grace period for any outstanding debt. During this time, no legal action may be taken against you in respect of the debts determined to be under review.
  3. The debt counsellor has 30 days to decide whether you qualify for debt counselling, and the value of the debt to be reviewed.
  4. If you qualify for debt review, the counsellor calculates a new budget (for basic living expenses) and a debt repayment plan to suit the parameters of the new budget.
  5. The counsellor may also approach creditors with the new payment plan. If creditors choose to disagree with the new plan, the counsellor will then approach the magistrate for a final decision. In addition, the counsellor approaches credit bureaus to update your status to ‘debt review’ (this is not the same as being blacklisted). This maximises protection against creditors and prevents you from accumulating any further debt.
  6. Once debt restructuring is finalized, a new repayment plan is formulated and submitted to a Payment Distribution Agency. This is the company to which you will direct a single monthly payment. The agency distributes the reduced payments to each of your creditors on your behalf.
  7. Once all creditors are paid up, the debt counsellor issues a clearance certificate. The credit bureaus remove the ‘debt review’ status and you stand officially cleared of all outstanding debt.

10 Debt Review Fees

  1. Restructuring Fee: Up to a maximum of R6,840.00 is payable in the first month.
  2. Application: R57.00
  3. Credit Check: R57.00
  4. Rejection fee: R342.00
  5. Monthly aftercare fee: 5% of monthly installments (up to a maximum of R456.00) for 24 months.
  6. Monthly aftercare fee: Equal to 3% of monthly installments.
  7. Legal fee: R855 (consent order)
  8. Sundry fee: Equal to consumer’s debt rehabilitation payment. This is a maximum fee of R4,500.00 and minimum of R2,000.00. It is due in the second month.
  9. Payment Distribution Agency: 3% of monthly rehabilitation payments (to the maximum of R570.00)
  10. Withdrawal fee: 75% of restructuring fee should the consumer choose to end the debt review process.

5 Disadvantages of Debt Review

  1. Prolonged Debt Repayments – To restructure debt into smaller repayments, with lower rates, requires repayment over a longer period of time. Sometimes this extends the repayments by years.
  2. Interest Accumulation – Although the interest percentage may drop with debt restructuring, the repayment terms will increase and interest could accumulate to a higher total than over a shorter period.
  3. Fees – If you are still reading, you have likely not been intimidated by the debt review fees already mentioned above. The sum of these fees can be truly astronomical at the end of the day.
  4. Life Style Changes – To prove willingness to repay debt, the legal system requires you to operate on a rather humble budget, willing to meet only basic needs and debt repayments. This will most certainly require cutting back on luxuries, like satellite TV, to be able to make the cut effective.
  5. No More Credit – Your new debt review status will now be reflected on your credit report and, in line with the requirements of the National Credit Act, you will not qualify for any new credit until all debts under review have been repaid. No short term loans, vehicle finance nor home loans will be accessible until then.

Despite the process, fees and disadvantages of Debt Review, the alternatives for those who have fallen heavily into debt are much less attractive. Living under a strict budget is essential to speeding up the debt repayment process. This remains the only valid solution when other options are to decrease monthly spending or increase your income; both of which are often impossible to achieve. Thanks to the South African Debt Review Policy, however, there is hope at the light of the dark tunnel of debt.

If your situation is not severe enough to require an official debt review, the alternative is to administer debt management techniques yourself. This comes down to strict self-discipline and basic money management. A good place to start may be implementing a more realistic monthly budget.

All the best from the LittleLoans Team!