Leaving debt review too soon could come back to bite you

It’s short-sighted and risky to leave debt review sooner, but it happens when people use this tool that the National Credit Act introduced to protect consumers when borrowing money from financial service providers, to quickly get a reprieve from debt collectors.

Many South African consumers struggle to stretch their income to cover all their expenses and make it to the end of the month. Many are turning to debt counseling and it has been a much needed lifeline for many people.

As part of the debt review, a qualified debt counselor negotiates one low monthly payment that covers all your debts and this new repayment structure takes into account all existing household expenses, such as transportation, rent, utilities and groceries, while allowing you to pay off debt while comfortably paying your monthly living expenses.

A large majority of consumers who leave the debt review program often return. “Many people enter the program seeking immediate relief from debt collectors and creditors, only to exit before their debt is successfully repaid,” said Charnel Collins, CEO of National Debt Advisors (NDA).

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Stay until your debts are paid

“The ultimate goal of the program is to help you reach a stage where you have paid off all your debts and can leave the program with a fresh start in the world of credit. However, it can be myopic and possibly risky to leave early, as it exposes you to legal action from creditors and possibly even the repossession of property by the courts.

She says a popular question from consumers of the program is when can they leave. “To understand the end of debt review, you must first understand the processes involved in entering a program.

“According to the definition of debt review, it is a legal and regulated by the court-ordered National Credit Regulator (NCR) process and exit from the program also goes through these same channels.”

The NCR outlines these guidelines for exiting debt review:

  • Everything is done through the magistrate’s court.

An order declaring a consumer in over-indebtedness subject to a debt review cannot be granted by a High Court, nor can it rule on whether the consumer should be removed from the debt. examination of his debt. All debt review proceedings take place in the district court.

  • Before a court order is granted.

As with all legal proceedings, a court order declaring a consumer in debt control can take time. In the meantime, a qualified over-indebtedness counselor can already declare a consumer over-indebted and proceed with the restructuring of his repayment conditions, in collaboration with his creditors.

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Where a court order has not yet been issued and your debt counselor is satisfied that you are capable of managing your debts, the debt counselor may present the facts to the court and request that the order be dismissed.

This can, for example, happen when there is an increase in income or a windfall of money that helps pay off a lot of your debt, Collins says.

  • After a court order has been granted.

According to the latest NCR regulations released earlier this year, the only way consumers can get out of debt review after a court order has been granted is if they have settled all of their debts in accordance with the agreement. restructured, with the exception of a home loan.

“Remember that although the restructured agreement is intended to help you at the beginning of your debt review journey and if your financial situation improves, you can inform the debt counselor that the review process debt could end sooner than originally planned.”

Once you have cleared all of your debts, the debt counselor issues a clearance certificate within seven business days and submits it to all credit bureaus who then remove the debt review flag and return your score to zero credit. With a clean slate, you’re now free to re-enter the credit market, Collins says.

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When you can’t ask for more credit

“An important aspect of the Debt Review Program is that it denies consumers the ability to accumulate new debt while paying off their existing debt. It teaches you to adopt healthier money management habits, such as saving and budgeting.

Collins explains that this is especially important because as consumers re-enter the credit market with a zero credit score, they must gradually rebuild it by adopting wise credit management habits, such as only spending money for affordable things and strictly sticking. on a budget.

“This is where you have to be careful not to end up in the debt review again,” she says.

Debt review can be a lifeline for consumers who are overwhelmed with debt and can provide respite to cover household expenses, protect them from creditor harassment, and protect their assets from repossession.

“One of the greatest gifts the Debt Review offers consumers is financial education to better manage their personal finances. With this knowledge, not only can they become debt free, but they can also achieve freedom financial.