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All the disadvantages of debt review (debt counselling)

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Before you make any big decision, it’s important that you weigh the pros and cons. This is especially true when it comes to making choices that could influence your financial well-being! 

Debt review is considered one of the greatest ways to overcome your debt. It’s safe, structured and designed to assist you in achieving a debt-free lifestyle. However, there are several disadvantages (and many advantages) you need to be aware of. 

This blog is going to explore the various disadvantages of debt review so you can make an informed choice about whether the process is right for you. 

 

A brief explanation of debt review 

In case you’re unfamiliar, here is a quick refresher of what debt review is. 

Debt review, also commonly known as debt counselling, was introduced to South Africans in 2007 as part of the National Credit Act. It is a debt rehabilitation programme available to over-indebted consumers. 

Over-indebted South Africans are offered financial assistance in the form of debt counselling and the implementation of a hyper-personalised, structured debt repayment plan, which helps registered participants eliminate their debt. 

If you would like to learn more about debt review, read our post What is debt review? South Africa’s solution to debt

 

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What is your estimate?

Try our debt reduction calculator to calculate your lower monthly debt instalment*.

*The calculation is an estimate actual amounts may vary.

debt review calculator
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Disadvantages of debt review

As soon as something sounds too good to be true, we naturally start to wonder what the drawbacks might be. 

To make it easy, we’ve compiled a list of all of the disadvantages of debt review. Here it is:

  • Credit freeze 
  • Not all debts may be included 
  • Not everybody qualifies for debt review 
  • Standard admin cost (fees) 

 

Now, let’s explain what each “disadvantage” means (note that some of these points were created to be advantages).

 

A graphic list of the disadvantages of debt review

 

Credit freeze 

Once you are legally under debt review, a notice goes out to all credit bureaus to ‘freeze’ your access to new credit. 

Simply put, this means you won’t be able to make more debt while under debt review (check out this post to learn more about debt review and loans).

This doesn’t last forever, and you’ll have access to credit again as soon as you complete the debt review process and get your clearance certificate from your debt counsellor.

What’s great is that a credit-freeze helps you start on a fresh slate. It works in your favour to speed up the debt review process, ensuring that you don’t prolong the process by continually creating more debt.  

 

Not all debts may be included 

As previously mentioned, when under debt review you are protected from legal action and asset repossession. However, if legal action has already been undertaken against you, that debt runs the risk of not being included in your plan.  

To prevent a tricky situation like this, it’s best to apply for debt counselling (debt review) as soon as you start to fall behind on your debt repayments. 

 

Not everybody qualifies for debt review 

In some cases, it may not be possible for you to apply for debt review. 

When you apply for debt counselling, your ‘indebtedness’ is reviewed to check whether you meet the necessary criteria to qualify for debt review.

A key qualifying factor is that you must have a steady monthly income to qualify for debt review. 

And this might be obvious, but you won’t be able to apply if the assessment reveals that you are capable of paying off your debt without the assistance of debt review.

 

Standard admin cost (fees) 

Technically, the administrative cost isn’t a “disadvantage of debt review”, and rather just standard industry practice. All financial services have a cost or fee that makes the service possible, and for debt review, the cost is baked-in by the NCR. 

What do we mean “baked-in”? It means that the cost is regulated by the NCR, so it is safe, and that it is integrated into the lower debt repayment plan. 

Here are the upsides of the debt counselling (debt review) fee structure

  • All debt review fees are regulated by the National Credit Regulator (NCR)
  • Fees are included in your reduced monthly instalments (this means you don’t have to pay anything out of pocket)
  • Fees are a fixed amount and there is no interest

 

These are the cons of debt review, but there’s a reason why thousands of South Africans apply for debt review each month — the pros of debt review. The advantages.

Let’s see what makes debt review (debt counselling) so appealing.

 

Advantages of debt review

Debt review (debt counselling) has some serious benefits!

Here are the advantages of debt review (debt counselling): 

  • Reduced monthly instalments
  • Consolidated repayment
  • Protection from creditors
  • Protection from asset repossession and legal action 
  • No permanent record of your debt review status 
  • A structured path toward debt freedom 

 

Let’s review each one in more detail.

 

A graphic list of the advantages of debt review (debt counselling)

 

Reduced monthly instalments

This is a big one.

The creation of a reduced and consolidated debt repayment plan is one of the most important parts of debt review.

When you apply, your debt counsellor negotiates the lowest repayment amount and interest rate that is suitable to your personal needs and living expenses, on your behalf. 

What does this mean? You get to pay less each month and don’t have to keep track of dozens of accounts.

Plus, it enforces a manageable monthly amount to help you consistently make repayments. 

 

Consolidated repayment

As mentioned in the above point, your debt repayment plan consists of a single consolidated monthly payment. This payment is made to your debt counsellor who will distribute it to your creditors for you (this is done through a payment distribution agency). 

With this in place, there is no need to worry about accidentally missing a payment and it takes the pressure off trying to keep track of multiple repayments, managing complicated paperwork or dealing with potentially aggressive creditors. 

 

Struggling to keep up with your debt?

Our team can help make your debt affordable once again.

We help thousands of South Africans to reduce their monthly debt repayments, protect them from legal action, and keep their assets — our team can help you too.

 

Protection from creditors 

Once you are under debt review, your debt counsellor will assume the responsibility of communicating with your creditors.

It’s important to note that creditors and credit bureaus are not allowed to bypass your counsellor and communicate with you directly — this is a huge benefit and a big stress-reliever!

Protection from asset repossession and legal action 

The benefit: you get to keep your stuff.

 

Debt review offers protection against creditors and secures your assets against repossession.

As mentioned earlier in this blog, if your creditors are pursuing legal action before you are determined over-indebted, you may not qualify for this type of protection. So if you’re at risk, then it may be a good time to apply.

Keep in mind that if you default on your debt repayment plan (do not make payments while under debt review) then your debt review may terminate and legal action could be taken against you.

 

No permanent record of your debt review status 

Another great benefit of debt review is that once you have completed the process, you are unflagged by creditors and credit bureaus and no permanent record is kept on any consumer bureau database. 

This truly offers you a fresh start. Now you can build your credit score without a mountain of unaffordable debt.

 

A structured path toward debt freedom 

Although the debt review process can be lengthy (depending on how much you owe), you are almost guaranteed debt freedom at the end of it! 

 

Indirect benefits of debt review

There are several other great benefits to debt review that aren’t as obvious. These are:

  • Debt review breaks the applicant’s reliance on debt
  • The process can help money-habits to improve
  • Knowing that things are taken care of means sleeping better at night.
  • Access to financial professionals who can help you develop better financial habits for long-term stability, as well as no longer being reliant on debt in the future. 

 

An alternative to debt review (debt counselling) that many South Africans look to is, debt consolidation loans. 

So we thought we’d add a comparison between debt review and debt consolidation loans to highlight the differences.

 

Debt consolidation loans comparison

A debt consolidation loan is a process whereby a loan is offered that covers the full amount of all your debts. This new loan is then paid off afterwards and an interest rate is included in the amount. 

With its own advantages and disadvantages, a debt consolidation loan can be a good option to pay off multiple debts at once. However, you’re still accumulating more debt as well as interest on the loan!  

Let’s take a deeper look at the pros and cons of a debt consolidation loan in comparison to debt review. 

 

Debt review 
Advantages  Disadvantages 
  • Reduced monthly instalments
  • Consolidated repayment
  • Safety from creditors 
  • Protection from asset repossession and legal action 
  • No permanent record of your debt review status 
  • A structured path toward debt freedom 
  • Credit freeze 
  • Not all debts may be included 
  • Not everybody qualifies for debt review 
  • Standard admin cost (fees) 
Debt consolidation loans 
Advantages  Disadvantages 
  • Can present a lower monthly repayment depending on the loan agreement
  • Consolidates your debt 
  • No credit freeze
  • Risk of not being able to repay the debt amount
  • Interest is included on the loan (the cost adds up over time)

 

A graphic that uses a table layout to compare Debt consolidation loans vs debt review

 

Closing thoughts

Tailored to your financial requirements, debt review is designed to make things simple and affordable. 

Although there are several disadvantages to debt review, there are many major benefits that can motivate you to reach your debt-free aspirations. The process requires steady determination, but the payoff is massive and can have a significant impact on the quality of your future. 

If you believe that you may need help addressing your debt, don’t hesitate to reach out, My Debt Hero is here to help you take the first steps toward addressing your debt.

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