Debt review can help you regain control of your finances, but you must know how it impacts your ability to borrow money.

Collectively, nearly R2 trillion is owed to creditors due to people being over-indebted in South Africa. Did you know that more than 700 000 people are under debt review in South Africa?

Debt review is a formalised procedure, introduced by the National Credit Regulator (NCR), that aims to assist South Africans who are battling to meet their debt obligations.

If you want to regain financial control, you can undergo a debt review by engaging with an NCR-registered debt counsellor for debt counselling.

The debt counsellor will help you navigate your debit orders and monthly financial commitments to see where you are overburdened to create a structured repayment plan to help you get out of debt.

The debt counsellor will then consult with your creditors, such as retail stores, vehicle finance providers, cellphone contract companies, etc. and propose a repayment plan.

If your credit providers agree to the proposed repayment plan, the debt counsellor makes payment arrangements on your behalf to reduce your payments to a more manageable amount per month. However, this may result in an extended loan or repayment term.


Avoid debt relief scam situations

The NCR notes: 'The concept of debt counselling and debt review is often misunderstood and as a result consumers miss out on the benefits and the protection that debt counselling offers.

The regulator adds that there is a high number of false and misleading debt counselling marketing practices. 'The sole intent [is] exploiting unsuspecting and financially distressed consumers. Some of these marketing practices, promise a certain percentage of debt reduction (even prior to a financial assessment), savings or consolidation. If it sounds too good to be true, it probably is.'

'Consumers are advised to be aware of false and misleading practices and to not fall victim particularly if approached, the NCR notes.

The NCR adds that understanding the debt counselling process from end to end, the consequences, the applicable fees charged, when, where and how to pay such fees, the various steps of the process, the prescribed timelines, the provisions to exit debt counselling and other facts are important elements that the consumer must be familiar with of before signing on the dotted line.


How to find a debt counsellor

• Here are a few important tips to ensure you find and deal with a legitimate debt counsellor:
• Debt counselling is conducted only by a debt counsellor registered with the NCR.
• Debt counsellors are registered as individuals and not as a juristic person or company.
• A financially distressed consumer must make sure that they have the debt counsellor's full details, such as their full name and surname, place of practice and their NCR registration
 number.
• Even if a debt counsellor is operating using a business or trading name, you have a right to know their name, surname, and NCR registration number.

You can verify the registration of a debt counsellor with the NCR or send an email to info@ncr.org.za if you think you're dealing with a shady debt counsellor.

Debt counselling is not a savings plan

According to the NCR, consumers must understand that seeking debt counselling and partaking in debt relief is not a savings plan.
You must also understand the difference between debt counselling and debt consolidation.

Debt consolidation offers you one loan to pay off all debts. This will result in the reduction of your multiple payments into one single monthly payment to the credit provider that has granted the consolidation loan.

Debt counselling does not cancel debt; it helps you to make reduced payments using disposable income and without having to borrow more money.

If you are approached and offered debt counselling, insist on getting clarity from the caller regarding their source of information or where they received your contact details and do your homework first before you commit to what is being offered, the NCR says.

'If under debt counselling you will be paying reduced amounts, as a result the repayment period of your debt may increase and you will take longer to pay off your debts, the NCR adds. However, you will still enjoy the legal protection against enforcement of debt by credit providers as long as you continue making payments as agreed.'

The NCR makes it clear that debt counselling should not be treated as a savings plan. 'It is a measure intended to provide relief for over-indebted consumers. Anyone saying even if you are not over-indebted you can apply, please note that this is misleading and do not do any business with such an individual, they do not have your best intentions at heart.'

How debt counselling impacts your ability to borrow

It's important to remember that if you undertake debt counselling, you won't be able to apply for credit (e.g., credit cards, home loans or vehicle finance) until you've repaid your debts and receive a clearance certificate from your registered debt counsellor.

While your debt counsellor assists you with your debt review and you begin the journey towards financial freedom once again, a debt counselling flag or indicator will be displayed on your credit profile at a credit bureau until the clearance certificate is issued.

Debt counselling is not a free service. You can visit the NCR website for up-to-date debt counselling fee guidelines. You can also ask your debt counsellor for a written disclosure of applicable fees before you apply for debt counselling.

The NCR says you must not allow your debt counsellor to pay your credit providers on your behalf. Rather pay your credit providers directly or use a payment distribution agent.

If you are married in community of property, you must jointly apply for debt counselling with your spouse, and this means both of you will not be able to apply for credit until you have completed the debt counselling journey.

If you need help with debt consolidation

Nedbank can help you get back on track and regain control of your finances and cash flow with a competitive consolidation loan. It might make sense to consolidate your loan if you get a better interest rate than the rates you're paying for the various loans or credit agreements. But it's important to remember that a consolidation loan is not debt counselling or a debt review.

Master your money with Money Edge. Register online for free.

Sources:

• Debt counselling - a debt relief measure for over-indebted consumers (ncr.org.za)
• Major red flags for savings accounts in South Africa - here's what to look out for (businesstech.co.za)
• Debt counselling explained - NCR 09115835 ct
  
• Consolidate your loans | Nedbank