What you need to know when applying for debt review

Brian Joss – Getting out of debt is hard, although not impossible.  But you do need a strategy.

A lot of confusion surrounds the concepts of debt review and debt consolidation. While both are classified as debt management tools which restructure your multiple debt accounts into a single, affordable repayment plan to reduce the stress of having to keep up to date with and on top of multiple debt repayments, there are some important differences to be aware of.

Debt consolidation is essentially another loan, which covers debt up to a maximum of R300,000. You need a good credit score to be eligible to apply, you have no legal protection of your assets during the repayment period, and your debt actually increases over time due to the high interest you’re paying on the loan.

Debt review, on the other hand, is a formal debt rehabilitation programme introduced by the National Credit Act (NCA) in 2007, and regulated by the National Credit Regulator (NCR). Its aim is to ensure fair practice to those consumers who are genuinely struggling to make ends meet every month due to debt. The programme covers an unlimited amount of debt, and your credit score is irrelevant – even those who have been blacklisted are eligible to apply. Anyone who has a monthly income, including rental income or a pension, which puts you in a position to make a reasonable offer to your credit providers, may apply.

Apart from an application fee of R50, payable when you meet a debt counsellor and complete an application form, there are no other upfront fees. Your debt counsellor’s fees – which includes a once-off restructuring fee (R6,000) and a small monthly after-care fee (5 per cent of your monthly instalments, limited to R500), plus legal fees (not exceeding R8,000) used to enrol a matter with the magistrate to obtain either a consent order or a court order – are all included in your debt repayment plan. Your first two to three payments are collected to cover the restructuring and legal fees, and are payable when your debt review application is approved.

 “There are currently over 1 500 registered debt counsellors listed on the NCR’s website: www.ncr.org.za. Like in any service industry, is advisable to do your homework on the debt counselling firm you decide to approach, before doing business with them. Generally, the bigger firms are better, as they have reputations to uphold,” concludes Ghana Msibi, WesBank Executive Head of Motor.

CAPTION: Discussing options: applying for debt review. Picture: Motorpress

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