Debt restructuring can be a valuable tool for anyone who is struggling to keep up with outstanding debts. If you’re new to the concept, don’t worry, this article covers everything you need to know about what it is, how it works, and when someone might need it.
Let’s start by defining debt restructuring.
What is debt restructuring?
The debt restructuring process involves negotiating a manageable monthly debt repayment plan with creditors on behalf of a debtor who is struggling to meet their debt obligations. Getting your debt restructured can be a lifeline if you’re having trouble paying your bills.
Here is an example that could help you to understand what debt restructuring is:
Sam owes R165000 and pays R5000 monthly. Having lost her partner, Sam is now solely responsible for supporting the family, and cannot afford to repay R5 000 per month towards her debt.
For Sam to restructure her debt, she would contact each of her creditor individually and request to restructure the debt and repayment terms
Sam could also apply for a debt review so that a debt counsellor can restructure her debt for her.
The latter option is usually much more effective. We’ll get into the reasons a bit more later in the article.
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Types of debt restructuring
Debt restructuring can take many forms:
- Lengthening the repayment period
- Bringing down the interest rate
- Making a reduction in the remaining balance
- Updating a past-due account and adding the unpaid portion back to the principal
Credit card companies and other lenders may also offer debt restructuring options that can help you avoid foreclosure or default on your debt.
The debt restructuring process
You can follow these steps to request a debt restructuring from a creditor:
Explain your financial situation
The debt restructuring process is a creditor’s response to borrowers who cannot pay their bills as they accrue. You should contact your lender as soon as you realise you cannot afford payments. Contacting your lender can be better for your credit than waiting for the lender to contact you, as they will only do so after you have already missed payments and accrued fees.
After making contact, wait for a lender response
Lenders are not obligated to assist you and may stick to the original terms of the loan. They may charge you late fees and report your late payments to the credit bureaus if you cannot pay. If you fall far behind on your payments, your account may be sent to collections – or you could be sued.
Weigh your options if the lender offers assistance
An offer of temporary hardship assistance or a loan restructuring may be made by the lender. If there is a debt restructuring proposal, it can take several forms, or there may be several options to choose from, such as an adjusted interest rate or repayment period.
Talk to the lender
Before accepting a debt restructuring offer, you may be able to negotiate the terms of your new contract. You might try negotiating a lower payment amount or getting a lower interest and fees waived.
Accepting the terms
Once you agree to the terms, you must formally accept and sign the agreement. Now you are obliged to follow through with the signed agreement and continue paying your debt.
We help thousands of South Africans reduce monthly debt costs, protect their assets, and stay out of court—find out what we can do for you.
Debt review makes it easy to restructure debts
Arrangements for structured, affordable debt repayment can protect your assets if you are over-indebted and falling behind on your debt repayments. Depending on your circumstances, a debt solution company can help consolidate all your debt into one monthly payment and reduce your interest rates.
The National Credit Act makes this debt protection available, and you cannot be sued by credit providers if you go through the debt review process. In addition to protecting your assets, you will also pay less for your debt each month.
If you’re considering applying for debt review to restructure your debt, then you can learn more about it right her. We have a great resource that can tell you everything you need to know about debt review. This can help you decide your next move.
How to apply for debt restructuring through debt review
- See if you qualify by contacting a registered debt review company.
- Put together your financial documents and cooperate with the debt counsellor for assessment and application.
- The credit bureau and creditors are notified of your formal request for debt review.
- A debt counsellor negotiates new payment terms and obtains approval for a new debt repayment plan.
- Under debt review, your payments remain reduced and you remain protected.
- Your debt counsellor issues your clearance certificate and removes your debt review status once you’ve completed the process.
My Debt Hero has been named one of the Top 10 Large Debt Counselling Firms by the Debt Review Awards. Our debt counsellors can guide you through the debt review process and help you to restructure your debt repayments and break the debt-cycle that you’re struggling to escape.
Do you want help managing your debt? Apply now. We can help.
