Will You Be a Debt Review Drop Out?
Many People Drop Out
It is a sad reality that many people start debt review with good intentions but later drop out of the process.
This causes them to end up in an even worse off financial position and erases all the progress they have made in sorting out their debt situation.
So, when are the dangerous times in debt review?
Why do so many drop off at those points in the process?
And what can you do to make sure that you are not a debt review drop out?
You Have To Pay Every Month
There are 2 main differences between how people deal with debt before debt review and during debt review.
Before debt review the arrangements with credit providers are based on signed agreements and it is possible to pay late, or even skip payments without immediate ramifications.
During debt review your payment arrangement becomes a court order and you have to pay every month or you lose all the benefits, right away.
This is why when you are in debt review you simply have to pay every month.
What Does Drop Off Mean?
When we talk about “dropping out” or ‘drop off’, we mean leaving the debt review process before it has benefitted you or before you have completed all the planned payments.
This traditionally happens when a consumer who is in debt review with help from a Debt Counsellor and paying via a Payment Distribution Agent (PDA) decides not to make payments any more.
As we will see, it can happen for a variety of reasons but the end result is always very bad.
Whats Happens When You Drop Out?
If someone leaves the debt review process suddenly, without any help from their Debt Counsellor it can cause a number of serious long term problems.
One thing that happens when people drop out of the process is that they still retain their debt review status at the credit bureaus (and with the National Credit Regulator). This means if they later try to go get more debt they will probably not be successful as credit providers will say: “Sorry, we see that you are still under debt review”.
The consumer also loses many of the amazing benefits they were previously getting under debt review. So, no lower repayments, no concessions on fees and no help from a Debt Counsellor.
In most cases, their debts are moved out of the credit providers nice and friendly debt review departments and back to the nasty old collections departments. This means calls and sms, scary letters and new legal action.
It also can mean that the accounts suddenly get a bunch of old fees added back which were not showing during the time of the debt review because they are no longer sticking to the court order.
Bad Times of the Year
One trend Debt Counsellors see is that many new consumers do not budget well, do not save anything (as planned in their budget) and are not able to cut back on spending.
Many people are also not prepared to wait to solve challenges or inconveniences. This can result in them dropping out of the process at certain high risk times of the year.
For example:
December & January Holiday Time
Easter Holiday Time
June Holiday Time
Sadly, some people run up extra expenses during these holiday times and do not stick to their well planned budgets. Then, when hit with extra expenses they skip their debt review payment and end up falling out of the process as a result.
In some cases, people think they are “doing it for their kids” but will essentially trade a week’s fun for years and years of hard financial times and stress. It can cost them their cars and homes. What a tragic mistake.
The Hardest Months of Debt Review
Most people have a debt review plan that stretches over 60 months*. But which months of the process are the most difficult for the average consumer?
*everyone’s plan is unique but this is pretty common because the credit providers don’t mind spreading their risk over 60 months.
Month 1 – 3
Many consumers say that the first 90 days are the hardest time in their debt review journey.
This is because of the massive change in mindset from a credit lifestyle where you constantly use credit to a cash lifestyle where you only have the money in your budget and not a cent more.
If you are not mentally prepared and if you have limited support from your Debt Counsellor, family and friends, you may not even make it past the first or second debt repayment.
The Month You First Get This Call
Another hard month is the month when you get your first, post signing up, collections call from someone who does not really understand how debt review works.
These random collections agents can inadvertently lie to you and may even trick you into doubting the debt review is working. Often this happens in one of the very first few months of the process.
If you believe them instead of the entire court process then you might think the debt review is not working.
Month 6 And Month 10
It may seem strange but a lot of people drop out of debt review just after getting the hang of it. If you have finally learned to run a cash lifestyle, why would you suddenly drop out just when it’s running smoothly?
This is because many consumers hit a big financial snag during these times. Unplanned family medical emergencies or some sort of car trouble is a pretty common reasons.
In a panic, consumers make the knee jerk decision to try leave debt review to somehow go get new credit (which they can’t) or they decide to pay those bills immediately (instead of waiting a month or three). This is because of long ingrained habits like just reaching for the credit card when problems arise.
Month 32
Many people who enter debt review and successfully make it past their first or even second year of being in debt review grow complacent. This starts to show in little ways, including when they head to the shops. It can also be seen in small impulse purchases. They start to make lots of small mistakes that can eventually leave them exposed.
After this long in debt review, people may also find that prices for transport, electricity and food have gone up a lot compared to when they started. As a result, while they do try stick to their budget for shopping, they stop saving. Without savings they are again exposed to sudden problems.
Month 36
If you have been in debt review for this long you may start to grow frustrated that so much time has past and you still have what looks like a lot of debt left.
In reality you are 60% of the way to being totally debt free but your levels of frustration and the desire to just be normal, like everyone else, can make you start to think strangely about your situation.
Ironically because your finances are now under control in debt review, you may also start thinking about things like a new car or new home. Since you can’t get those things while under debt review some people make a mistake at this point instead of pushing through to the finish line.
Trying to Save Money By Dropping Off
Some people think they are being smart by telling their Debt Counsellor they no longer want to pay for their services and also do not want to pay via a Payment Distribution Agent.
They may then simply keep paying the credit providers the amounts they see on their court order each month, hoping the credit provider won’t notice any change.
Will they save?
Well, this can initially seem to save the consumer some money on fees each month. For example, if they were paying 7 credit providers a combined amount of R4000 a month towards their debts they might save as much as R250 – R300.
So, that seems great, right?
Well, its not as simple as that.
While they may seem to be saving, at any point the credit providers (who receive notices from the Debt Counsellor) can hand the account back to their collections departments, remove all the progress made up to that point, can add back old interest and fees and demand the consumer meet them at court for a new court judgement.
All of that can add up to thousands of rands lost and thousands of rands needing to be spent. And if any assets are involved it can even result in the banks coming to take those assets away.
So…No, not really a saving.
Often those who have made this move then run back to the Debt Counsellor who was helping them before and ask for help or run to another Debt Counsellor and ask them to somehow save them but its probably way too late for that.
I Dropped Out Of Debt Review: PLEASE HELP!
If in the past, you were in debt review but were unable to continue, you are not alone.
As many as 1 Million people may be in this situation. It has become a national financial crises of note.
So, what can you do if this is your situation?
Step 1) Give up on the idea of making even more debt for yourself. You don’t qualify and can’t afford it anyway.
Step 2) Speak to your credit providers and then settle up your debt as best you can. It will take time but you can do it.
Step 3) Once your debts are all finally paid up, speak to any NCR registered Debt Counsellor. They can help you get a clearance certificate which will enable you to re-enter the credit market.
Beware!
Please be very, very careful of who you ask to help you get your debt review status at credit bureaus removed. Unfortunately, thousands of consumers have been scammed with false promises, being tricked into paying up front for services they never receive or don’t really qualify for from people who can’t really help.
You Can Only Leave Debt Review If Your Debts Are All Paid Up
Beware!
If you see any offers online for a loan even if you are “blacklisted” or “under debt review” then be aware that you are looking at a scam as this is illegal in South Africa. They will trick you into paying them some sort of application fee or evaluation fee upfront and then run away with your money.
Don't Be a Debt Review Drop Out
Having debt is terrible. Being debt free is an amazing goal.
Debt review can get you there but to do so you will have to get through both (1) the tricky times of each year and (2) the tricky months during your debt review journey.
The good news is that you do not have to do it on your own. When you feel the pressure mount to leave the process prematurely, take the time to talk to your Debt Counsellor. You pay them a small after care fee each month for their time and effort. So, reach out to them. Discuss your situation and avoid making mistakes by acting without considering the consequences.
There are no benefits whatsoever to leaving the process before it is done.
It would be like leaving the hairdressers half way through a cut. Sure, you might save some time but boy, oh boy are you going to look funny. So, don’t do it!
Rather, find ways to adjust, get expert advice and push through the pain to reach your ultimate goal of being totally debt free.
And in truth that is not the end of the journey either. No, the next step is to start building future wealth for your family. But first things first. Get rid of your debt and please don’t be a debt review drop out.
