D2 - We Asked Ourselves: Is Debt Review Right For Us?
- Joe Debt
- Jun 1
- 5 min read
Updated: Aug 22
In our last post "Our Debt Busting Strategy" , we mentioned that debt review has become somewhat of a buzzword in South Africa. Most times nowadays, when you complete an application form for some sort of credit - like a credit card or car loan - you are usually asked whether you are currently under debt review. Why is this, and what is debt review really about? And could it be the answer to all our debt-related problems?
What Is Debt Review?
In a Nutshell
Debt review, also known as debt counselling, was introduced by the National Credit Act 34 of 2005 (NCA) in South Africa to help individuals who are overindebted and struggling to make their monthly payments to their creditors (companies they owe money to).
This process involves working with a certified debt counsellor who evaluates your financial situation and negotiates with creditors to reduce your monthly payments. It aims to make your financial commitments more manageable, providing you with a structured plan to settle your debts.
Debt counsellors in South Africa (under the National Credit Act) can assist only with debts governed by the National Credit Act (NCA). This includes most types of consumer credit, such as:
Debts that debt counselors can assist with:
Personal loans (from registered credit providers)
Credit cards
Retail/store accounts (e.g., Edgars, Woolworths, etc.)
Vehicle finance
Home loans/bonds
Overdraft facilities
Furniture and appliance accounts
Microloans/payday loans
Cellphone contracts (if on credit)
Any loan from a registered credit provider under the NCA
Debts that debt counselors CANNOT assist with:
Debts not covered by the NCA, such as:
Municipal arrears (e.g. water, electricity, rates)
SARS/tax debt
School fees
Medical bills (unless turned into judgment debt)
Business loans (if not a sole proprietor under NCA)
Loans from informal/unregistered lenders
Judgment debts (once a court has ruled against the consumer, unless settled or rescinded)
Maintenance orders (child maintenance arrears)
How Debt Review Works
The idea is to combine all your monthly debt payments into one, and reduce that amount so it's smaller than what you are currently paying. This means extra cash in your pocket each month.
You then pay one “agreed” amount to a Payment Distribution Agency (PDA), which then makes the individual payments to your various creditors.
The debt review process comes to an end once all your creditors have been paid what you owe them—at that point, you're no longer under debt review.
This almost sounds like a straight forward debt consolidation loan. But it's not. More on that in my next blog post, where it will become apparent.
Advantages and Disadvantage of Debt Review
Advantages of debt review
Single monthly payment: Rather than managing several payments to various creditors, you make one combined monthly payment to a payment distribution agency (PDA), which subsequently allocates the funds to your creditors.
Lower monthly payments: Debt counselors work with creditors to reduce your monthly installments, making debt payments more manageable. This can help improve your cash flow.
Reduced interest rates: Debt counselors may sometimes arrange for reduced interest rates with creditors, leading to significant savings over time.
Protection from legal action: Debt review reduces the likelihood of creditors taking legal action, thus safeguarding the assets of the person in debt. However, it's crucial to understand that creditors are not always legally required to stop seeking repayments during the debt review, particularly if legal proceedings began before the debt review process. Therefore, following the repayment plan is essential.
Disadvantages of debt review
Court order: The repayment plan is established as a court order, obligating you to comply with it legally. Not following it may lead to additional legal proceedings.
Additional fees: Debt counselors impose a fee for their services, which may increase your total debt.
Extended duration: Debt review may take a long time, occasionally spanning several years to finish, based on the debt amount.
No new credit: During debt review, you are not allowed to engage in any new credit agreements, unless it involves a consolidated loan under certain conditions.
Effect on credit record and credit score: Undergoing debt review will adversely affect your credit record and score. Credit bureaus will list you as under debt review, which could hinder your ability to secure new credit in the future and might influence the interest rates imposed by creditors.
Is Debt Review Right for Us?
Every situation is different. If you are struggling to make ends meet and fear you might default (miss one or more payments) on your debt, then debt review might be the right option. Entering debt review is a significant decision that shouldn't be made hastily. It's important to consult with a registered debt counsellor to evaluate your personal situation and decide if it is the appropriate option for you.
Do we think that debt review is right for us? I don’t think it’s the best choice—at least not now, for the following reasons :
we are managing to pay all our creditors each month
we still have a little extra cash (a buffer) available after paying all our creditors at the end of each month
we are able to pay a portion of the capital of the debt each month
In other words, we believe that we can effectively manage our debt and still live relatively comfortably. Most importantly, the money we're paying off becomes available credit again in case of emergencies (e.g., medical or other unexpected expenses), and if it wasn't for that, we wouldn't have anything to fall back in an emergency.
A Word of Caution
To reiterate, everyone's financial situation is unique, and it's crucial to consider both the advantages and disadvantages before deciding whether this is the right path for you. In fact, I strongly recommend you consult with a certified Debt Counselor first who can assess your situation and advise your accordingly.
What We Really Need: An Emergency Fund
As mentioned above, rather than relying on credit for emergencies, what I think we really need is an emergency fund—a go-to savings buffer for those unplanned expenses. That way, we don't go backwards by tapping into our credit again. We shall be researching what the emergency fund amount should be under the category BUDGETING, but for now we know that even if we start small we need to start.
What’s Next?
Now that I have decided that Debt Review is not the right choice for us (at the moment), the next logical trail of events would be to explore the following, in this order:
Step 1: Know Your Numbers
What is the total amount of our bad debt? - this has been done. check out Our Debt Scorecard.
Exactly how much of the capital portion of the debt can we afford to pay off each month - what is our budget surplus?
Which method will we use to pay off our debt - the Snowball or Avalanche method? and,
When, in theory, we could become debt-free ?
Step 2: Create Your Budget (work in progress)
Building the budget
Monitoring and revising the budget
Check out our next post:
Until then, take (financial) care!
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