Many consumers who are thinking of entering debt review wonder, how long is this process? Because each person’s financial situation is unique, a debt review could take only a few months, or it could take several years. Let’s consider some of the factors influencing how long the process could last and some debt counselling industry “norms”.There are some ‘common’ repayment terms (how many months it takes to repay the debt) when dealing with debts. These are the normal time periods that banks and other credit providers ask people to repay their debts over.HERE ARE A FEW EXAMPLES
- A payday loan will be repaid within a few days at the end of month
- Car finance could be repaid over 72 months or even 96 months
- Small personal loans are often repaid over a year
- Large personal loans are often repaid over 6 years
- Other types of debt allow you to use the debt and pay off only some before dipping into the debt again such as a credit card or overdraft facility. Though you could settle the debt and are asked for a minimum repayment each month, the debt could, in theory, go on forever as long as you pay something towards the debt each month.
- Home loans (bonds) are often paid off over 25 or 30 years.
It is also normal to have account fees which are charged for all debts each month. These can be as much as R60 plus Vat each month. If you have 10 accounts then, you could be paying R600 a month just in account fees.
The general idea behind debt restructuring is to help consumers stretch out the time period required to repay the debt. Rather than stick to industry norms for repaying debt the time period can be extended to as long as is needed. This means the monthly repayment amount can be smaller.
Then, because the consumer does not need as much money to repay their debts, they have more money available to cover their monthly obligations.
In order to assist consumers to avoid lots of extra fees and interest, credit providers often willingly cancel fees entirely and lower the original interest rate. This can end up saving consumers thousands over time.
What is interesting is that the debt is not the primary focus of a Debt Counsellor. A Debt Counsellor will actually begin their calculations by first looking at how much the consumer realistically must have to cover
their family’s needs each month. Once they have that figure, they will know how much the consumer has available to allocate towards their debts.
Debt review proposals (made by Debt Counsellors) are taken to court and put before a Magistrate who decides if he likes the proposals or not. The Magistrate then makes a final court order restructuring the debts. While the National Credit Act says that debt can simply be repaid over any time period that “eventually” settles the debt, many courts like to see something that is fairly reasonable.
They do not enjoy proposals that will take too many years to repay. Credit providers also have some preferred time periods during negotiations, before the court hearing happens. With that in mind, it is not uncommon for debt counselling software to work out repayment periods over 60 months (5 years). This is because often the banks find this to be a “safe” or manageable risk period.
So, where a debt may have, before debt review, been repaid over 24 months it could now be stretched out and calculated over 60 months.
Though there are industry ‘norms’ this does not mean that if you start debt review you will be forced to pay off your debts over 60 months. You may have less debt and be able to repay that debt over only a few months. Or your debt may be larger and you may need to pay them off over a longer time period.
This is why a Debt Counsellor first has a detailed look at your finances and your monthly needs. This will determine how much is available to repay your debts. They will then negotiate changes to your interest rates and fees to help keep the repayment time period to the shortest possible and practical. Once the court has this information they will make a court order restructuring the debt.
If you later begin to earn more (or less) it is possible to talk to all your credit providers to try and adjust the arrangement (which could mean going back to court).
The focus is on settling all smaller debts (including vehicles) and then ending the debt review. It is not necessary to repay your entire bond through debt review. It is possible to leave a debt review when only a bond is left.
If you are in the debt review process and have been paying off your debts regularly then you will have received monthly statements from your Payment Distribution Agent (PDA). This helps you track some information about your debts. You can also have a good look at the table included in your personal copy of your debt restructuring court order to see how many months each debt will take to get paid off (as long as you stick to the arrangement). If your matter has not yet gone to court (at the very start of the process) then you can ask your Debt Counsellor for a copy of the proposal they are going to make to the courts. This could give you a rough idea of what the courts may order. If your matter has gone to court and you do not yet have a copy of your court order, ask your Debt Counsellor for one.
If it feels like your debts are taking a long time to get paid off, remember that part of the purpose of debt review is also allow you to cover your monthly costs for your family. To accomplish this it is often most practical to repay your debts over a longer time period.
Tracking your monthly progress in repaying your debts against the time periods shown in your court order can help you get a feeling of progress throughout the process. If you do wish to speed up your debt review then you can talk to your Debt Counsellor about paying a little more towards your debt each month if you are able. This will help you finish repaying your debts sooner.
One of the joys of debt review is not having to worry about your debts any more. You are able to focus on living and not stressing. Before you know it you will find your debts have disappeared.