Most of the time when people encounter financial challenges, they are aware of debt review being an option to get out of trouble. But they are reluctant to take the big step and apply for debt review. Some often postpone until it is too late.

One reason for this uncertainty and reluctance, is because people are either misinformed or uninformed about the debt review process. This despite the fact that, since 2007 of the more than 2 million people in South Africa that applied for debt review, most of them successfully completed the process.

There are a number of things people tend to worry about regarding debt review. Four questions are discussed In Part 1 of this miniseries.

In general, people are under debt review for about five years. However, this period could be longer, when, for instance, they are unable to pay enough to settle the debt plus interest in the five-year period. The repayment period could also be shorter. Sometimes, people’s circumstances improve, and the debt can be settled sooner. This could happen when they get a promotion, or a salary raise or inherit some money.  There is no fixed period, but the greater the amount that a person can repay, the sooner they can be cleared.

When applying for debt review, a person (or couple) will be listed with the credit bureaus as “under debt review”. While this flag remains active, one cannot make new debt. Although people are “blacklisted” when under debt review, the fact that many people forget, is that at the point where they consider debt review, chances are 100 per cent that they are already blacklisted.

A positive outcome of the debt review process is that when all the accounts under debt review are settled, the debt counsellor is authorised under law to issue a clearance certificate, which removes the flag at the credit bureaus. After 30 days, clients are debt free, and they could make new debt if they need to. There will no record against a person’s name who completed the debt review process about the fact that they were under debt review.

The debt counsellor will make a calculation of future repayments, based on what clients can afford, as well as what creditors will consider a reasonable repayment amount to be. The repayment amount is calculated as take-home salary, minus personal expenses (rent, food, insurance, cell phone and internet, clothing, medical expenses, transport, water and electricity, etc.). As part of the final proposal to creditors, the debt counsellor will calculate a reasonable repayment amount by taking into consideration the outstanding balances, the type of credit (home loan, car, credit card and loans) the current interest rate and current required repayment amounts. This proposal – if accepted by both parties – will serve as a legal agreement between creditors and debtors. As a rule of thumb, one could expect to save about 10 per cent on bond and car instalments, and as much as 50 per cent on credit card and personal loan payments.

The National Credit Act of South Africa is very clear about defaulting. If a person has an agreement with creditors to pay a certain amount every month, creditors have the right to terminate the debt review and start legal action. This could happen if clients skip a single payment or does not pay the full amount in a particular month. It is, however, possible to notify creditors and arrange for a short “payment holiday”, under specific circumstances like illness, or retrenchment. These circumstances are the exception rather than the rule, and consumers cannot skip payments on a regular basis or for any reason.