What is Debt Review and How Can It Help You?

What is Debt Review?

Debt Review is a structured process that allows you to hand over your debt negotiations to a professional Debt Counsellor. Your Debt Counsellor will assess your debts and income, and then work with you to develop a personalized payment plan. This plan includes manageable installment amounts and lower interest rates, negotiated with your creditors. Throughout the process, your Debt Counsellor will be your dedicated point of contact, guiding you towards financial stability.

Debt review, also known as debt counselling, is a formal legal process regulated by the National Credit Act (NCA) and enforced by the National Credit Regulator (NCR). Debt review was introduced in South Africa to help over-indebted consumers restructure their debt and negotiate with creditors on their behalf to make debt repayments more manageable and sustainable. The household debt to income ratio in South Africa is amongst the highest in the world at approximately 62.4% (2023). This means that, on average, 62% of the monthly take-home pay that South African households earn goes towards paying debt.  According to the South African Reserve Bank (SARB), the annual growth in household debt accelerated slightly in 2023, with the ratio of household debt to nominal disposable income increasing to 62.4% from 62.0% in 2022.

Through debt review, a new, more affordable monthly budget and payment plan are drawn up by the debt counsellor, showing a clear picture of the consumer's household spending vs. income and a detailed plan on how they will pay up their debt commitments. A debt counsellor then approaches the consumer's credit providers with a manageable monthly payment plan to be paid within 60 months maximum, i.e. five years.

How Does Debt Review Work?

Here's a general outline of how the debt review process works:

1. Application: The consumer applies for debt review with a registered debt counsellor. A consumer approaches the debt counsellor and completes a Form 16 application form for debt review. The debt counsellor informs the consumer's credit providers that they have applied for debt review through Form 17.1.
2. Financial Assessment: The debt counsellor then assesses the consumer's financial situation to determine whether they are over-indebted. Credit providers furnish the debt counsellor with certificates of balance of the consumers’ debt commitments. The debt counsellor completes the financial assessment using these balances.
3. Notification: If the consumer is found to be over-indebted, the debt counsellor will notify the credit bureaus and the consumer's creditors that the consumer is under debt review. The debt counsellor informs the credit bureaus through the National Credit Regulator Debt Help System (DHS) by sending Form 17.2, advising them that the consumer is over-indebted.
4. Repayment Plan: The debt counsellor then draws up a restructured monthly budget and repayment plan and negotiates with the consumer's creditors on behalf of the consumer for reduced payments. Within 30 days of the consumer's application, the debt counsellor submits a suitable repayment plan. If accepted by credit providers, the consumer will start paying in line with this negotiated payment plan.
5. Court Order: Once all parties agree to the repayment plan, it can be made an order of the court. This provides legal protection to the consumer (i.e. protecting their assets like a house and car) and ensures that the terms of the agreement are adhered to. The debt counsellor will approach the courts on behalf of the consumer to obtain a debt review court order which makes binding the rearranged payment plan.
6. Payment: The consumer makes regular payments as per the restructured plan. These payments are usually managed by a Payment Distribution Agency (PDA), which distributes the payments to the creditors as per the plan.
7. Completion: Once the consumer has finished paying off their debt, the debt counsellor issues a Form 19. This is known as a clearance certificate and is issued to a consumer after he/she has satisfied all obligations under every credit agreement. At this stage, the consumer is removed from debt review and is declared to no longer be over-indebted.

What are the Benefits of Debt Review?

1. Debt Review Improves Your Money Habits

This is arguably one of the most important benefits of debt review compared to other forms of debt relief like debt consolidation. Most of the time, after someone consolidates their debt, the debt grows back. Why? Because they don’t have a game plan to pay cash and spend less. In other words, they haven’t established good money habits for getting and staying out of debt and building wealth. Their behaviour hasn’t changed, so it’s extremely likely they will go right back into debt. Debt review, on the other hand, targets behavioural change with money. You learn to pay cash on all purchases, spend less, and draw up a budget that is realistic. Debt review stops one from borrowing and focuses on debt elimination.

Read more about the differences between a debt consolidation loan and debt review.

2. Debt Review is Flexible

Your debt counsellor won't hold you back if you can settle your loans faster than anticipated in your repayment plan. Should you run into some money, e.g. an inheritance, and you want to pay off all your accounts and get off debt review, you can. We encourage our clients to pay extra when they can so that they can come off debt review as quickly as possible and realise their financial goals (e.g. buying that dream house).

3. Legal Protection for Your Assets

Your assets, e.g. your home and car, are protected while under debt review and cannot be repossessed by your credit providers. This is one of the most important benefits of debt review, especially compared to a debt consolidation loan. When the debt counsellor approaches the courts to obtain a court order,  the rearranged plan is made an order of the court. This means that credit providers agree to the rearranged plan and your assets are protected. Creditors cannot take legal action against a consumer once the debt review process has started and before the debt has been settled, provided the consumer follows the repayment plan.

4. Consolidates and Simplifies Payments

Consumers make one consolidated payment that is distributed to all creditors, which simplifies their finances. This achieves the same effect as a debt consolidation loan but with more benefits.

5. Reduces Your Interest Rates

The debt counsellor will negotiate with your credit providers to reduce the interest rates on your debt commitments. The savings from reduced interest rates reduce your total obligations.

6. Affordable Monthly Payments

You pay one reduced monthly manageable amount that pays all your accounts. Your debt counsellor works with you to decide on a sustainable amount.

Disadvantages of Debt Review

There are some disadvantages to applying for debt counselling, and it's important to be aware of them to ensure they don't affect you.

1. New Credit Agreements Are Blocked

Under Section 88(1) of the National Credit Act (No. 34 of 2005), you are prohibited from entering into any new credit agreements while under debt review. While this restriction may feel limiting, the focus during debt review should be on eliminating existing debt, not taking on new financial obligations.

2. Debt Review Can Be Terminated for Missed Payments

If you miss any of your agreed-upon monthly payments, creditors may terminate the debt review process and take legal action. To avoid this, it's important to adhere to the payment plan set by your debt counsellor. If you're worried about missing a payment, contact your debt counsellor immediately to discuss possible solutions.

3. Not All Debts Are Covered

Debt review cannot cover every type of debt. For example, debts tied to a home loan or vehicle with a judgment or summons cannot be included. Similarly, debts such as unpaid school fees, municipal levies, or unpaid levies are also excluded, as these are not part of a formal credit agreement.

4. A Court Order Cannot Be Rescinded

Once a debt review court order is obtained, you cannot terminate or withdraw from the process until all your debts are settled according to the court's terms. This means that you are legally bound to stick to the repayment plan until your debts are fully cleared.

5. Dual Application for Married Couples (Community of Property)

If you're married in community of property (CoP) and your partner wishes to apply for debt review, both partners must apply. Since you are jointly responsible for debts accumulated during your marriage, your financial situation will be assessed together.

6. Extended Repayment Terms

Debt review typically results in lower monthly payments, which may lead to a longer repayment period. The aim is to make your repayments manageable, but this means it could take longer to pay off your debts. If your financial situation improves during debt review, you should consider increasing your payments to shorten the repayment period.

7. There Are Fees Involved

Debt counsellors charge fees for their services, but these fees are regulated by the National Credit Regulator. Your debt counsellor is required to be transparent about their fees, and you should be fully aware of the costs involved before proceeding with debt review.

How Long will Debt Review Last?

Typically, the debt review process can last between 3 and 5 years, but this is not a fixed period. Some individuals can be under debt review for a shorter period if they have a relatively small amount of debt or if they come into additional money (like an inheritance or a bonus at work) that they can use to settle their debts sooner. Conversely, if the debt amount is substantial, the period could be longer.

The length of time that debt review lasts is not one-size-fits-all; it varies from person to person based on several factors, including:

1. Amount of Debt: The more debt you have, the longer it may take to pay it off, even with renegotiated terms.
2. Income and Expenses: If you have a stable income and can allocate a reasonable amount of your income to debt repayment after essential expenses, you may be able to complete the process faster.
3. Interest Rates and Charges: The interest rates and charges that your debt counsellor can negotiate with your creditors will affect the duration of the debt review process. Reduced interest rates can result in a shorter debt review period.
4. Adherence to the Payment Plan: How strictly you adhere to the revised payment plan will impact the duration. Missing payments can extend the process.

Once a consumer completes the process, the debt counsellor will issue a clearance certificate indicating that the consumer has satisfied all the requirements under the debt review and is no longer over-indebted. This certificate is then sent to all credit bureaus and creditors to remove the debt review status from the consumer's credit profile. There is no permanent record of having applied for debt review once the Debt Counsellor removes you from debt review.

How Do You Exit Debt Review? 

Exiting debt review involves completing the repayment plan and meeting all the terms set by your Debt Counsellor. A consumer under debt review can only be issued a Clearance Certificate once the following conditions are met:

1. All Debts Are Paid Off
   The consumer must have fully paid all the debts listed in the debt review court order or repayment agreement.

2. Short-Term Credit Agreements Are Settled
   The consumer must also have settled all short-term credit agreements, such as vehicle financing, credit card debt, and personal loans, included in the court order or repayment agreement. In this case, the only remaining debt should be a mortgage loan that is not in arrears.

3. Paid-up letters from Credit Providers
   Credit providers must issue paid-up letters for all settled debts before the Debt Counsellor can issue a Clearance Certificate. These letters confirm that the debts have been fully repaid.

4. Updating Credit Bureaus
   Once the Clearance Certificate is issued, it must be sent to all relevant credit bureaus, along with the paid-up letters. Both the Debt Counsellor and credit bureaus must update their records to reflect that the consumer has completed the debt review process.

Only after these steps are completed can the consumer officially exit debt review and have their credit record updated accordingly.

How Much Will Debt Review Cost?

Debt review fees, which are payable by you as the consumer, are strictly regulated by the National Credit Regulator (NCR). These fees are due in the first month or within 30 days from the date of your debt review application.

The current NCR-approved fees are as follows

1. Application Fee:
   A once-off fee of R50 (excluding VAT).

2. Administration Fee:
   A once-off fee of R300 (excluding VAT).

3. Restructuring Fee:
   A once-off fee equal to 100% of your first instalment under the debt re-arrangement plan, with a maximum of:

   • R8000 (excluding VAT) for single applications, or
   • R9000 (excluding VAT) for joint applications (e.g., for couples married in Community of Property (CoP)).

4. Monthly Aftercare Fee:
   A monthly fee of 5% of your monthly rehabilitation amount (excluding VAT), up to a maximum of R450.

5. Monthly Payment Distribution Fee:
   A fee of up to R15 (including VAT) per debt obligation, payable to the Payment Distribution Agency (PDA). This fee is in line with NCR Guidelines and is paid to Hyphen Technologies (Pty) Ltd, our designated PDA.

These fees are set by the NCR to ensure transparency and fairness.

Do you need Debt Review?

The process has proven to be a useful mechanism for those unable to meet their debt obligations, giving them a chance to regain financial stability without resorting to more drastic measures like insolvency or bankruptcy. If you are stretched and struggling to service your debt every month, it can be hard to know where to turn. Read more about the signs you might need debt review.

Our experts at Debt Sage are available to help you in a way that’s best for you. We will guide you through the entire debt review process and help you deal with your debts and become debt-free. Get started today.

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