Managing credit wisely can improve your life in so many ways. However, if you take out too much credit and can’t keep up with payments, it can have serious consequences for your financial health and take you years to recover.

The solution to being overindebted is debt counselling in a process called debt review. The National Credit Act (NCA) sets out the rules for debt review. The Act aims to curb predatory lending and help over-indebted people to get out of debt. 

Understanding the debt review process

Debt review involves your debt counsellor renegotiating your debt repayments with your creditors. This could result in you paying less each month for a longer time, giving you some financial breathing room. The process also protects you from legal action as you tackle your debt – on condition that legal action has not already started when you apply for debt review.

Apart from helping you to get out of an unhealthy financial situation, the debt review process can teach you how to manage your money and debt better in the future.

Getting into debt review

If you’re overindebted and battling to pay your creditors every month despite having a regular income, contacting a debt counsellor and applying to go under debt review may help. You can find a list of registered debt counsellors on the National Credit Regulator (NCR) website. A debt counsellor will review your financial situation and negotiate a repayment plan with your creditors. This could result in lower monthly payments, a decrease in the interest charged, or a change in the repayment timeline.

After negotiating with your creditors, the debt counsellor will adjust your monthly debt repayments according to your current income, so that you can afford the payments. They will also contact all the credit bureaus and let them know that you are under debt review. Your record at the credit bureaus will be updated to show this, and you will not be granted any further credit while debt review is still in progress. This will enable you to pay off your debt without piling on additional debt.

Like any professional, your debt counsellor will charge you for reviewing your debt. Make sure you know exactly what their fees are before you apply for debt review.

What being under debt review means to you

Not everyone automatically qualifies for debt review. You must prove that you are overindebted, and you must have a steady income. If not, a debt counsellor can turn down your application.

Depending on how much debt you have, your payment plan could last from 3 to 5 years, or even longer. You will need to be disciplined and committed to see the process through.

During this period, you could pay your creditors directly or use an intermediary called a payment distribution agent. The agent keeps track of how much you pay each creditor in line with your payment plan and sends you and your debt counsellor monthly statements.

Tips to get out of debt review

Debt review involves changes in financial behaviour and a commitment to getting out of debt. It’s difficult, but it’s the only way you can clear your credit profile and regain your financial freedom. Here are a few tips to follow:

1. Stay the course

Stick to the payment plan you made by paying your creditors in full and on time. If you miss a single payment, you lose your legal protection from creditors.

2. Pay more than you need to if possible

If you can pay extra towards your debt, whether it be income from a second job or a side hustle, you can shorten the debt review period.

3. Know when you can exit the process

Once you’ve applied for debt review, the debt counsellor must log an application for debt review with the court and serve it on your creditors. If the court grants the application, the debt counsellor issues a document called Form 17.2, confirming that you are under debt review. If you change your mind and want to withdraw from debt review, you can do so only before Form 17.2 is issued.

Once the debt counsellor issues Form 17.2, you are committed to debt review until you can prove to the court that you are no longer over-indebted. However, once the debt rearrangement order is granted, the only way to exit debt review is by paying all your debt. You may then apply for a clearance certificate. A home loan is the only special case – you don’t have to pay off your home loan in full before you can apply to leave debt review. You need only to bring the payments up to date according to the terms of your debt review order.  

4. Make the exit official

When your debt counsellor is satisfied that you have fulfilled your debt repayment obligations according to the debt review order, you can apply to the court for a clearance certificate. With this clearance certificate, the debt counsellor can instruct the NCR to remove the debt review listing from your credit profile. The debt counsellor must give you a copy of the clearance certificate to prove that you’ve settled all your outstanding debt and are creditworthy again.

Regaining your financial freedom

When you regain your financial freedom, be more careful with credit so that you don’t become overindebted again. Responsible debt management gives you access to a powerful tool to help you reach your financial goals, whether it’s a car loan, home loan, credit card, or an overdraft. The key is healthy financial management.