Here’s why debt review will freeze your credit line
The once-off cost and ongoing fees of debt review do not come cheaply. According to FNB, a consumer who, for example, has an initial balance going into debt review of R54,452.38 will pay R7,809 once off to get the process started. Ongoing fees will, in this example, amount to R971.88 over a 60-month period.
Consumers often turn to debt review as a last resort and when they don’t see a solution to their financial problems.
“We have noticed that there has been an increase in customers applying for debt review, year-on-year relative to customers following our normal collections process,” says Jonathan de Beer, head of Collections at FNB Credit Card. “However, customers need to be aware of the restrictions as well as the likely costs before automatically turning to the debt review as a solution.”
Introduced in 2007, debt review – which falls within the National Credit Act 34 of 2005 – allows consumers to restructure their debt over a set number of months to hopefully allow them to come out the other side in a more manageable debt position.
De Beer says that while one of the major advantages is that a debt counsellor can, on behalf of the customer, negotiate with all their creditors a repayment amount the customer can actually afford, the consequences of the process need to be carefully considered.
“It is difficult to withdraw from debt review once a consumer has entered the process,” he says. “Should they want to withdraw, they would need to go to court to get an order stating that they are no longer over indebted or they will be required to settle all outstanding unsecured debt. There would also be a withdrawal fee payable by the consumer, prior to a clearance certificate being issued.
“While under debt review, customers can’t incur any further debt, so no further credit may be granted, and they also can’t make use of any of their credit cards, store cards, overdraft facilities or even purchase a vehicle.”
The most common problem when it comes to customers in debt is that they avoid the issue, instead of talking to their financial institutions, says de Beer. “It is usually in the best interest of both the creditor and the customer to make an arrangement,” he says, noting that most creditors are open to discussion and agreeing to repayment arrangements. “Through the process, credit bureaus are advised by the debt counsellors that the customer has applied for debt review and the customer’s credit profile will be updated accordingly, instead of credit providers pursuing with summons and judgements, which negatively affects the customer’s credit rating.”
If you are in under your head in debt, battling to get on top of your credit cards and overdraft facilities, approach your bank or a reputable debt counsellor for help. If you continue to live in doubt, black listing is a very real possibility.