What you should know about debt review

With the number of indebted consumers applying for debt review rising, Jonathan de Beer, head of collections at FNB Credit Card, tells us what you should consider before beginning the process

By design, debt review is a tool that overly indebted people can use as a way to restructure their debt and pay it off typically over a longer period.

The benefit of going under debt review, De Beer says, is that debt counsellors are able to negotiate directly on your behalf with all your creditors to come to an affordable repayment schedule, which is noted with credit bureaus. Once that happens, any legal action that creditors are entitled to pursue will cease.

But what many people don’t take into consideration are some of the costs involved in the process.

“Initial costs of debt review can be high,” De Beer says. “There are once-off upfront fees and monthly after-care fees.”

READ MORE: 5 signs that your debt is out of control

A person with a debt balance of R54 452,38, for example, with an instalment of R971,88 a month over five years, can expect to pay about R11 300 in debt review fees over the period.

De Beer says you should be certain about your decision to go under debt review because it’s a long and complicated process to put a stop to, and will require you going to court to obtain a court order declaring that you aren’t over indebted any longer. Alternatively, you’ll be required to settle all outstanding unsecured debt.

You will also be liable to pay withdrawal fees before a clearance certificate can be issued.

If you have any intentions of buying a car or anything that requires financing, you won’t be able to do so, because once you’re under debt review you’re not allowed to incur any further debt or use any of your credit cards, store cards or overdraft facilities.

Before opting to go under debt review, De Beer advises that you communicate with your creditors to try to arrange a repayment plan that won’t cripple you financially but also won’t prevent you from accessing credit for cases of emergencies.

READ MORE: How to manage your debt

“One of the most common problems when it comes to customers in debt is that they avoid the issue instead of talking to financial institutions,” De Beer says. “It is usually in the best interest of both the creditor and the customer to make an arrangement.

“Another alternative, and one that customers are often unwilling to consider, is a change in lifestyle. Selling unnecessary movable assets and cutting down on luxury expenses as well as budgeting effectively will not only help pay up debt, but will also prevent the same issues coming up in the future.”