Debt review: A survival kit
What do people newly under debt review find hardest to do without?
“The ability to take on more debt,” says registered debt counsellor Corinne Lewis, who owns a large debt-counselling business based in Scottburgh, on KZN’s south coast.
“By the time they decide to go under debt review, they’ve usually spent years racking up credit card debt and taking out loans. It’s really hard for them to break that destructive habit.”
Debt review, also referred to as debt counselling, is a process regulated by the National Credit Act, aimed at helping those who are struggling to repay their loans get out of that debt hole while meeting their day-to-day expenses and saving their assets.
HOW IT WORKS
A qualified debt counsellor, registered with the National Credit Regulator (NCR), negotiates on the indebted person’s behalf with their creditors to reduce interest rates, have the term of each credit agreement extended and the instalments reduced.
That becomes an order of the magistrate's court, and the person then pays an agreed lump sum every month, usually but not necessarily via a payment distribution agent (PDA), each of those creditors getting their agreed portion of it.
People signing up for debt review must have a stable form of monthly income, they cannot get any new credit during the debt-review period, there can be no “payment holidays”, and the process is not free.
WHO IS AFFECTED
There has been a spike in debt-review applications in recent months. “Many people haven’t had salary increases for the past three years, with some losing out on overtime payments, while the cost of living - fuel, electricity, groceries - has shot up,” Lewis said.
While major debt-counselling firm Debt Rescue has reported a significant increase in the number of 21- to 30-year-olds applying for debt review - they made up 29% of all applicants in the first quarter of this year, versus 20% in the same period last year - Lewis said middle- to high-income earners remained the “most exposed”.
“We’re seeing a lot of 40-somethings, who earn between R30,000 and R50,000, with multiple maxed-out credit cards and several loans they can no longer service,” she said.
Debt counselling is not without cost, but most are built into the monthly payment commitment.
The fees are set by the NCR - currently a R50 application fee, a once-off administration fee of R300, and a once-off restructuring fee of up to R8,000 for an individual applicant and R9,000 for a joint application.
For many, the restructuring fee is far less than that, being the same as that monthly lump-sum payment they’ll make in settlement of their combined debts.
There are also legal fees to be paid at the beginning the process, and a monthly “after-care” fee of 5% of that instalment, capped at R450.
On top of that, the PDA adds a maximum of R15 per payment for each creditor every month, although the act does stipulate that the use of a PDA is optional: a debtor can choose to make the payments themselves, although few do.
The fees are built into the debt-review process, so those needing to go under debt review because of overwhelming debt don’t first need to find thousands of rands to make that happen.
At the end of the review period - two to five years, depending on the extent of the debt - the person gets a clearance certificate that compels their creditors and the credit bureaus to remove any information about the debt review and their previous unpaid debts from their systems.
ADVICE ON CHOOSING A DEBT COUNSELLOR
Key to a successful debt review is choosing the right debt counsellor.
To date 21 debt counsellors have had their registrations cancelled by the National Consumer Tribunal for non-compliance, ranging from failure to register, to failing to appoint a PDA, charging consumers fees they weren’t entitled to and failing to render services.
The NCR recently warned consumers about debt counselling SMS and e-mail adverts promising a saving on monthly instalments by to 60%.
Some debt counsellors inflate consumers’ monthly expenses to reduce the amount available to repay debts, which is both unethical and misleading, according to the NCR’s debt counselling manager Kedilatile Legodi.
The NCR also takes a dim view of call centre agents acting as debt counsellors.
PROTECT YOURSELF LIKE THIS
Lewis had this advice for someone considering going under debt review:
- Choose a NCR-registered debt counsellor who has a good reputation. Check out the debt review awards
- A good debt counsellor does not talk about how little you can pay a month. “The more you can pay, the better your counsellor can negotiate on your behalf and the quicker you’ll get out of debt.”
- Insist on a monthly statement from your PDA.
READ BEFORE YOU SIGN
Independent Pretoria-based debt counsellor Renée Marais has this advice:
- Consumers may not be forced by a debt counsellor to use a PDA, they are allowed to make payments towards their debt themselves.
- Engage the services of a debt counsellor near you with whom you can make an appointment to see, in person.
- Get a second opinion before you sign anything.
- Check that your debt counsellor refers your matter to court, and that the information in the affidavit you are asked to sign and confirm under oath is correct. Make sure that you have copies of the exchanges via e-mail between your debt counsellor and the credit providers relating to counter offers and acceptances and that you can actually afford to pay those amounts. And make sure you get a copy of the court order.
- Get regular statements from your credit providers to see if what they are getting corresponds with the payments you are making under debt review.
MORE HELP IS COMING
Consumers who can’t afford debt counselling will be able to get it for free under the National Credit Amendment Bill, which awaits the president’s signing into law.
The bill is aimed at consumers with unsecured credit agreements amounting to no more than R50,000 and who receive an average income of no more than R7,500 a month.
Those who qualify will be able to apply to the NCR and have their debt restructured over five years.
If that's not possible, the bill allows for the suspension of credit payments for up to two years. If, after two years the consumer is still not able to make repayments, it allows for a percentage of, or all of, the debt to be extinguished.