Is Debt Review A Good Idea?
Is Debt Review A Good Idea?
If you are having trouble paying your credit providers the full monthly amount they are demanding, then you are probably wondering if debt review might be a suitable option for you.
Since its inception in 2007, when the government introduced the new National Credit Act (NCA), hundreds of thousands of South Africans have entered and completed debt review. The question you must ask yourself is, is debt review right for me?
Why Did the Lawmakers Create Debt Review?
In the past, when consumers could not make the required repayment, credit providers would quickly run to court to obtain an “EAO” (commonly called a garnishing order) against the consumers’ salary. Alternatively, they sent the sheriff of the court to evaluate and then sell the consumers assets. These methods were really tough on consumers, and things were very much in favour of the credit providers. Even if consumers wanted to repay what they could (actually) afford each month, credit providers often ignored this attempt at settlement and went to court anyway. This was expensive for consumers and left them stuck with judgments for 30 years or more.
Existing older legal options, like sequestration (what they call ‘declaring bankruptcy’ in the USA) or administration (which only covered debts up to R50,000) either took too long or cost too much for the average consumer.
‘Debt review was written into law because the lawmakers saw a real need to assist consumers who want to pay their debt’
Debt review was written into law because the lawmakers saw a real need to assist consumers who want to pay their debt, but are experiencing difficulty in living up to the creditors’ demands.
Rather than taking half the country to court, resulting in expensive legal bills and judgments against their name, the ‘higher ups’ realized that there needed to be a middle ground, which was fairer to consumers. Besides about half of all credit users are months and months behind on their repayments. That’s millions of people.
‘the lawmakers introduced debt review and debt counselling into the National Credit Act’
The result was that the lawmakers introduced debt review and debt counselling into the National Credit Act. Today most people use the two different terms to mean pretty much the same thing: getting help with your debt from a Debt Counsellor.
People Who Understand Debt and Laws About Credit
Debt Counsellors are trained professionals who assist consumers, credit providers and the courts to agree with ways to pay off the debts people have. Their training helps these counsellors act like a sort of financial fitness couch to consumers, while still ensuring that all the credit providers involved, get a fair repayment each month.
When a person has fallen behind on their debt repayments, they start getting harassed by collections agents who normally demand completely unrealistic payment figures. It is almost like they do not realize that consumers have other bills to pay at home, and other credit providers they also owe money to. Because these collections agents work for commission, they always push for big payment promises, which consumers already know they cannot afford. Consumers eventually promise to pay (just to stop the harassment), and then seldom do because they can’t afford what was asked, even though they have been threatened with expensive legal action.
‘The Debt Counsellor will … see what can realistically and consistently be repaid each month until the debt is paid off’
Debt review is focused on consumers making the same realistic payments to their credit providers every single month. The Debt Counsellor will review the consumer’s figures, including all of their debts (not just one particular debt) and see what can realistically and consistently be repaid each month until the debt is paid off. Sure, this payment period may take longer than originally planned by the consumer and credit provider when first obtaining the credit, but it means that all the credit providers can 100% count on that repayment amount each month from the consumer.
But Isn’t Debt Review Bad? I Have Heard Complaints
Some people say that they have had bad experiences with debt review. Others complain that they got stuck in debt review, and have had to pay for many years. Does this mean that there is something wrong with debt review?
Why do you hear these complaints?
Often times, when people begin debt review they jump in without thinking because it is a fantastic process. It is true that debt review will help you avoid massive legal bills, and expensive judgments against your name and will stop all the collections harassment, but it is also a long term commitment (if you have a lot of debt or very little income each month). Doing anything for a long time is tough.
It takes time:
Paying off debt slowly, little by little can also be hard for people. Most of us like instant gratification, which is why credit is so popular. Debt review is focused on realistic smaller monthly repayments, which will naturally take a long time. The only way to speed things up is to start to earn more and pay more each month. Then you can really get rid of your debt quickly.
Most Debt Counsellors try to help consumers get out of their debt within 5 years. This is faster than paying off an average car, half the time a Sequestration takes, and 25 years less than a court judgment could last! So, not that long, really.
People don’t stick to the court order:
When people miss payments, or stop payments and fall out of the process they are quick to complain because the credit providers will once again start to hound them and start new legal action. Because debt review court orders say that you have to pay every month, consumers need to stick to the plan, or the credit providers will become upset. They cannot just ignore the court order and expect nothing bad to happen. Debt review is not a way to avoid paying debt, it is a manageable way to pay off what you owe.
Those who drop out of the process also don’t enjoy not being able to get new credit until they have finished paying up what they already owe. Only once that is done can they start to use credit again. If you have lots of debt, then you already know that credit providers do not want to give you more credit that you cannot afford. You have to pay off your existing debts first.
Busy Debt Counsellors
Some consumers find that their Debt Counsellor is so busy helping lots of people, that they need to be very persistent and insistent to get the kind of service they require. A sure way to avoid any such issues is to choose a good Debt Counsellor, with a good reputation and capacity to help you, and then have honest, clear and patient communication.
‘choose a good Debt Counsellor, with a good reputation and capacity to help you, and then have honest, clear and patient communication’
Most complaints are made by people who have not stuck to the requirements of the process. In a similar way that a newly divorced person will naturally complain about how bad marriage can be, it is understandable that you will hear complaints from people who have not been able to finish their debt review smoothly. It makes sense. It doesn’t mean debt review is bad.
Is Debt Review Good?
If you ask a doctor if it is a good idea to go to a doctor when someone is sick, it would not be a surprise to hear them say: “Yes, it is a good idea. Get help!” Similarly, if you ask a Debt Counsellor if they think it is a good idea to talk to a professional debt counselling expert when you are having financial trouble they will naturally tell you: “Yes. Get help!”
It makes sense to talk to an expert about the various options available to you if you are having problems paying all your credit providers every month. They have experience and know what options are available to you. Especially if you have started to get frightening letters from the bank, then now is the time to talk to a Debt Counsellor and see if you could qualify and benefit from debt review.
‘It makes sense to talk to an expert about the various options available to you if you are having problems paying all your credit providers’
If you decide that debt review is right for you, (since it is so amazing) be sure to understand exactly what the Debt Counsellor will do for you, what your attorneys will do for you, what your credit providers will do during the process and what you need to do. Keep in contact with your Debt Counsellor and be actively engaged in the process. Track your payments, your balances and your progress throughout the process, and focus on getting out of debt as soon as is possible.
Be sure to stick to the requirements of the court order, and try to improve your knowledge of credit use and the debt review process. Cultivate good financial habits that will help you throughout the rest of your life.
So, if you want to pay only what you can realistically afford each month towards your debts, while still caring for your family’s everyday needs, then:
Yes, debt review is a very good idea!
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