Some of the frequently asked questions about debt review and counselling are briefly answered below, to help you make an informed decision about responsible debt management options.
Can you reduce the interest rate on the outstanding debt?
Yes, it is possible to negotiate reduced interest rates on your debt, although it cannot be guaranteed that the credit providers will agree to such. The interest rate negotiated depends on the amount you have available for repaying the debt and to still have enough cash for your basic living expenses. Note that the credit providers do not necessarily care how much you have left for living expenses and they are only interested in having the debt paid.
Can one extend the repayment period for debt considerably?
It depends on the willingness of the credit providers to extend the repayment period. The maximum period allowed for, in terms of store and credit card debts, is normally 60 months, while the maximum period for vehicle finance can be extended to 84 months.
Is there a difference between debt consolidation and debt review?
Yes, with consolidation, you apply for a loan that can be used to pay all your debts. You then have to repay the loan. This type of loan makes it possible to pay a single credit provider, instead of several credit providers. It can be a viable option, if the interest rate offered is lower than what you pay to the various credit providers or if the repayment period is longer.
Debt review also entails the consolidation of the monthly repayments to various creditors in a single monthly instalment. The difference is that this amount is normally lower than what you would have paid to the creditors and the period over which you can pay back is also longer. If you are under review, you cannot enter into any new credit agreements until you have paid off the debts and have received your debt clearance certificate.
The review helps you to avoid a situation of making more debt. With the consolidation loan, you can still enter into other credit agreements, but you do not have protection against creditors from repossessing your assets during the repayment period. However, under review you have to ensure that you do not miss any instalments, as this will allow credit providers the opportunity to withdraw from the review agreement and demand payment of arrears.
Debt consolidation is an option for the individual that is not completely over-indebted yet, but if you are already at a place where you cannot make payments, miss payments or only make partial payments, you should consider debt review as an alternative.
How is it possible to become so over-indebted that you cannot make payments if there are such strict credit provision regulations in place?
Unfortunately, living expenses become more with time and even though you may have been in a situation where you were not over-exposed to credit before, the cost of living may be higher now than at that stage. With such, you are no longer able to afford basics and to make repayments. Your financial situation may have changed because of illness or death in the family, a period in which you did not have income or perhaps because of the addition of more members to your household. Overspending is easy and is also a reason for becoming over-indebted. Learning to live with less can help to reduce your debt. Consider a cheaper medical aid or insurance option, make use of public transport, send your children to a public rather than private school, cut back on holidays, fast-foods and perhaps take care of the garden instead of using garden services. These are all examples of how it is possible to reduce monthly expenses, in order to ensure that you can repay debt.
If debt consolidation is easier and allows you to still enter into credit agreements, why should one undergo debt review?
Under review, you will be left with enough money to pay for your basic expenses and will not be in a situation where you get into more debt. You can thus only spend the money that you have. Credit cards and store accounts come with high interest rates, and if you are struggling to make payments, but want to protect your assets, review is a better option. With debt review, your credit providers cannot harass you. The credit providers and the credit bureau are notified of your review status, and cannot offer you any credit during the period. This helps you to pay off your debt and once done, to be able to return to normal living and credit agreements.
There is no easy way to get out of debt, but there are viable solutions, such as consolidation or review. Depending on your particular situation, our counsellors will recommend appropriate methods for debt management.