How debt counselling or debt review works
1. Find a debt counsellor. You can search for members at www.ncr.org.za, the website of the National Credit Regulator.
2. Give your payslip, your ID document and all your monthly repayments to the debt counsellor you have selected. You’ll also need to provide a monthly budget of other expenses, such as food and petrol. Remember that only your basic expenses will be included in the budget.
3. The debt counsellor will work out if you are over-indebted (if your payments are simply unaffordable on your current income), work out how much you need to live on and what is left over to repay your debts.
4. At this point, you’ll be able to officially apply for debt counselling, and the debt counsellor will tell you what the costs are:
•Application fee of R50
•Administration fee of R300 following consultation
•Professional restructuring fee (maximum of R8 000; if you’re married in community of property, maximum of R9 000)
•Monthly aftercare fee (5% of repayment amount for 24 months, or a maximum of R450 (e.g. total debt payment is R4 000, then fee is 4000 x 5% = R200)
•Legal fee (Dependent on attorney and court i.e. either tribunal or magistrate’s court (Fees have to be disclosed upfront and can range between R2 000 and R6 000, excluding Vat)
The debt counsellor must take time to explain the fees and process to you in detail. Ask as many questions as you need to.
5.The debt counsellor will complete a form 17.1 and send it to all the credit providers. The credit providers then have five days to issue a Certificate of Balance to the debt counsellor.
6.The debt counsellor takes the money available for credit repayments as per the revised budget, and works out a new repayment plan which is sent to credit providers as a proposal.
7.Each credit provider reviews the proposal and either accepts it or make counter proposals, depending on various rules.
8.Should one or more of the credit providers not like the terms, the debt counsellor will have to approach a magistrate with the proposed debt repayments to get a decision. As long as the repayment plan is reasonable, it should be approved by the court.
9.Once all the credit providers agree with the repayment proposals offered by the debt counsellor, a legal ‘consent order’ will be obtained. (In many cases this could mean a reduction in fees and interest payable by consumer.)
10.Once this is finalized the account is rescheduled by the credit providers with the new instalment and interest rate.
11.The debt counsellor will advise the credit bureaus and tell them to list you as being under debt counselling.
This is not a blacklisting – debt review is a protection. It will be removed completely once you’ve paid everything off. You cannot apply for any further loans/credit while under debt review.
12.Once agreement has been reached, the debt counsellor will give you your final repayment plan and also submit it to a Payment Distribution Agency (PDA).
13.This PDA agency will take a lump sum from you each month via debit order and split it up between the credit providers, according to the repayment plan.
14.Your obligation is to keep up the monthly payments until such time as the whole amount has been paid off.
15.The amount available for debt repayments will remain the same each month. As some of the smaller accounts are settled, the amount paid to other credit providers will increase. (E.g. R4000 is split between Woolworths for R500 and African Bank for R3 500; once Woolworths balance is paid up, the full R4000 will be paid to African Bank.)
16.Once all your debt is settled, the debt counsellor issues a clearance certificate and notifies the credit bureaus.
17.The accepted maximum time for debt review is seven years (84 months) but a home loan can’t be repaid in this time. Once all the other debt is settled, the home loan will revert back to the contractual agreement.
18.During the period under debt review, consumers are declared over-indebted and will not be able to get new credit for the period of debt review.