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Debt Review Success Tips

The debt review process can help you to repay what you owe to your various credit providers in a manageable fashion. With the help of a court, you can organise reasonable payments each month (at good interest rates) instead of facing unreasonable collections demands left, right and centre. But what can help you make the most of the debt review process? In this short series of articles, we are looking at top tips for success while under debt review.

TIP #7

Debt Review Takes Time

One of the biggest enemies to debt review success is impatience. 

It is easy to get yourself into debt (it is!) and you can get yourself into debt in a fairly short time period. Getting out of debt takes years. If you make all your “normal” debt repayments according to your agreements with your credit providers it can take you 18 months, 24 months, 60 months or 72 months to settle your debts. If you have a bond it can take 20, 25 or 30 years to pay off your debts. 

‘It is easy to get yourself into debt … in a fairly short time’

Some types of debt, like a credit card or overdraft, allow you to make small repayments and stretch our debt repayment as you access the credit facility over and over. This means that you may pay off part of the debt but you will always have that debt with you unless you go cold turkey and stop using it. Which is hard.

Debt review repayment plans take several things into account when working out how long to repay debt over. 

    1. How much you can actually, realistically afford to repay toward debt each month after covering your necessary monthly running costs at home.
    2. What interest rates are charged on different credit accounts and if your credit providers might be willing to reduce these
    3. Negotiations with credit providers before making a final proposal
    4. Giving a proportional amount to each credit provider / how it can be most fair to each credit provider involved.

Most credit providers feel that 60 months (5 years) is a reasonable time period to consider. They prefer debts to be repaid over a shorter time period of course but their risk management is often done over 5 year estimates and plans. So, credit providers are often happy to get their debts repaid within this time period and will often adjust interest rates (down to Repo for secured debts and even zero for unsecured debts) to help ensure that. They will drop monthly account fees and do all sorts of things to try help ensure the repayment term stays under this “golden” target.

The law allows for repayments over any term (even settlement upon death) but this is the debt review ‘sweet spot’, at present. Slowly, there has been an increase to longer time periods among some credit providers but still, this is often a common repayment time period.

Let us say that you have a “typical” 5 year plan to repay debt. That’s a long time. A lot can happen in 5 years (remember 2020?). Even just deciding to be healthy and do daily exercise for 5 years would be tough. Many people make new years resolutions and 90 days later have given up on them. Never mind 5 years.

Be Patient

The saying ‘slow and steady wins the race’ is particularly true for debt review and paying off your debt. You need to chip away at it month after month, year after year. Because of the small interest portions on the debts you are repaying, it can also feel like your progress is slow until you are past the halfway mark (eg. 2.5 years). Balances take a while to start to shift.

‘it can also feel like your progress is slow until you are past the halfway mark’

Debt review plans also tend to try treat all credit providers the same and this can mean that even smaller debts take up to 5 years to pay off even though the balances are small. 

During the process, many people can get so frustrated by their debt not shrinking quickly that they decide to leave the process and lose all the benefit of the progress made. This is a huge mistake and causes a lot of trouble.

Speed Things Along

If possible, try to earn a few extra bucks here and there (or save a bit more by making some smart decisions) and talk to your Debt Counsellor about paying off smaller debts. If you can pay these off the funds that were previously allocated to that debt can be shifted over to another smaller debt. This can then speed up repayments on that debt. And so things can begin to snowball. If you are able to regularly pay more than anticipated then this can also help, even if it is only an extra R100.

A debt that was going to be paid in 5 years might soon become 4 years..or less. Imagine being debt free a year sooner than planned.

‘remember you are also able to cover your daily and monthly household needs due to the debt review process’

So, if you are in the debt review process, do not become disheartened by seemingly slow progress. Also, beware of credit provider statements that have incorrect figures and balances (See Tip #6). You are making progress and remember you are also able to cover your daily and monthly household needs due to the debt review process. This is one of the prime benefits and should not be overlooked while it is taking time to pay off your debts. So, keep up the good work.

Slow and steady wins the race…