Getting out of debt is difficult, but not impossible, but you need a strategy,” according to Ghana Msibi, WesBank’s executive head of the motor division.
He explains the debt review process in a practical way.
The first step in the debt review application process is an income and expenditure assessment. Your debt counsellor would need to see your pay slip or bank statement showing proof of income.
You also need to show your ID document; your contractual obligations; and the breakdown of your budget.
Should you decide to go ahead and apply for debt review, it takes up to 60 business days to finalise a debt review payment proposal.
During this period, your debt counsellor will obtain the certificate of balance from all your creditors and determine whether you are over-indebted or not.
If you are over-indebted, the debt counsellor will negotiate with your creditors to restructure a new repayment plan, comprising reduced interest rates, extended terms, and smaller monthly repayments.
At the same time, it will ensure you have enough to cover your essential living expenses.
Forewarned is forearmed
Should one or more of your creditors decline the new payment proposals, your debt counsellor will have to approach a magistrate’s court to get a court order.
If your application is not finalised within the legally stipulated timeframe, and your credit agreements are in arrears, your creditors are entitled to terminate the debt review, after which time legal action can be taken against you.
Participation in good faith by all stakeholders is crucial to the successful outcome of a debt review. This is why it is so important you choose a reputable debt counselling firm to work with from the outset.
If all goes according to plan
If all your creditors agree with the new payment proposals offered by your debt counsellor, a legal consent order will be obtained.
This means that your new payment terms have been agreed and cannot be unilaterally changed. You will then start repaying all your creditors via one single, affordable transaction per month.
Provided you don’t fall into arrears with your repayment plan obligations, you will have legal protection of your assets during the repayment period, which is generally five years.
If you are able to pay in extra to your agreed repayment plan, you will be able to settle the loan in a shorter period, which will not only save you the interest you’d otherwise have paid over the full term of the loan, but it’ll also increase your credit rating.
A clear exit strategy
For the duration of your repayment plan, your profile with the credit bureaus will be flagged to say you are “under debt review”. This means that no creditor may grant you credit up until that flag has been removed.
Only once you have settled your debt in full and can demonstrate that you now have the ability to satisfy future financial obligations, will your debt counsellor issue you with a debt review clearance certificate.
The debt counsellor will also notify your creditors and the credit bureaus that you are no longer “under debt review”, and that flag will finally be removed from your credit profile.