Guide: Should you get out of debt review?

“Debt counselling (also known as debt review) is a formal and closely managed debt solution, introduced by the National Credit Act (NCA) in 2007. The process helps clients who are unable to make their monthly debt re-payments, by entering them into a structured debt re-payment plan with their credit providers, in order to ensure they take firm control of their financial situation and settle their short and long-term debt. It is a remedy that is best suited to consumers who are over-indebted and struggling to make regular monthly payments towards their debts,” explained Bhavesh Naran, Marketing Co-ordinator at Intelligent Debt Management Group.
 
How does debt review work?
 
There are several steps and procedures in the debt review process. These include:

• Your debt repayments will be reduced to an amount that you can comfortably afford.
• You will make one combined monthly debt repayment that is affordable.
• Your debt counsellor will negotiate with your credit providers to reduce interest rates and fees on your accounts.
• Your debt counsellor will apply to get a court order on your behalf, which will provide you with legal protection from your creditors.

 
Can you get out of debt review?
 
“Termination is no longer voluntary as per the changes to the NCA in February this year. Your debt counsellor should have reduced your interest rates when restructuring your debt repayments. Failure to pay your creditors can result in termination of your debt review which would result in you having to pay the original instalments to your credit providers and possibly the shortfall for the duration you were under debt review,” said Ian Wason, Justmoney’s debt counselling expert and the CEO of DebtBusters.
 
Voluntary termination of the debt review process can take place under the following instances, according to Naran.

• All debt under debt counselling is settled or all debt excluding your home loan- this allows a clearance certificate to be issued and the credit bureaux to be updated accordingly.
• A Form 17.2 (which states that you have applied for debt review and are over-indebted) has not been issued, which is only applicable to clients within the initial week of application. This allows a Form 17.W (a) to be issued.
• The Debt rearrangement order is rescinded. This allows a Form 17.W(c) to be issued.
• A court order declaring solvency is obtained, this would be applicable if a debt rearrangement order was not obtained and you are able to afford your living expenses and your debt obligations. This allows a Form 17.W (d) to be issued.

Unfortunately if you are unhappy with your debt counsellor, you are not able to withdraw from the debt review process. However, you can request that a new debt counsellor is appointed to your case.
 
How do you remove your name from debt review?
 
Your name can only be removed from debt review once all your debt (excluding your home loan) is paid off.
 
The process of removing your name requires the following:

• All your debt is repaid, excluding your home loan.
• A form 17.2 has not been issued (for clients in initial week of application) a Form 17.W (a) needs to be issued.
• The debt rearrangement order is rescinded. This allows a Form 17.W(c) to be issued.
• A court order declaring solvency is obtained, this would be applicable if a debt rearrangement order was not obtained and you are able to afford your living expenses and your debt obligations. This allows a Form 17.W (d) to be issued.

 
Can you get a loan while under debt review?
 
Unfortunately while under debt review you are unable to take out further credit.
 
Wason explained: “If you are in need of cash for expenses, it would be best to contact your debt counsellor and arrange for a restructure of your payment plan if possible. With debt review, the idea is for clients to not increase their debt, hence the reason for not being allowed further credit.”
 
Can you get out of debt review and go for debt consolidation instead?
 
If you are terminated from debt review, you may attempt to secure a loan. However, getting approval for a loan depends on your credit score (and your affordability), which will more often than not be indicating a poor score and, hence the need for debt counselling in the first place.
 
“It is more than likely that you would be declined a loan due to this reason. You will need to improve your credit score dramatically in order to secure any form of credit. Consolidation loans carry strict requirements, some of which are that you may not be over-indebted and all accounts need to be fully paid-up,” noted Naran.
 
Debt consolidation
 
“Debt consolidation is an effective method of debt re-financing, which involves taking out one loan to settle many others. It is a viable financial solution designed to simplify multiple debt repayments and, under some circumstances, can save the consumer money,” said Naran.
 
The process involves taking out a single, new loan, at the lowest possible interest, to pay off multiple smaller debts. You are essentially taking out one loan to pay off all of your smaller accounts.