Thinking about debt review? Beware – they are costly

While debt review is an option out of a tight financial situation, consumers should be warned that the process, duration, and costs involved can be daunting.

It follows the introduction of the debt review process by the National Credit Regulator in an attempt to assist the surge of over-indebted consumers.

Credit bureau, Compuscan’s, statistics indicate that of the 19 273 105 local credit active consumers in SA, 532,718 of these are currently under debt review and 87,706 are in the process of applying for debt counselling.

Kirsten Reynolds, an executive at online lender GetBucks, said that many are still unaware of the fact that, in addition to their debt restructuring fee, debt collectors are within their rights as per the NCR’s counselling fee guidelines to charge for a range services.

Some of the service costs consumers may not be aware of include:

  • a restructuring fee to the maximum of R6 840 (incl VAT) is payable in the first month
  • an application fee of R57 (incl VAT)
  • a credit check fee of R57 (incl VAT)
  • a rejection fee of R342 (incl VAT) should the debt counsellor not consider the consumer’s application
  • a monthly after-care fee for 24 months equal to 5% of the monthly instalment on the payment plan, to the maximum of R456 (incl VAT)
  • a monthly after-care fee for the remaining period equal to 3% of the monthly instalment
  • a legal fee of R855 (incl VAT) (for a consent order) or whatever the debt counsellor pre-agrees with the consumer for non-consent orders
  • a sundry fee is due in the second month of rehabilitation, this is a once off fee equal to the consumer’s rehab payment (a minimum of R2000 ad a maximum of R4500)
  • Payment Distribution Agency (PDA) fee – 3% of the monthly rehab payment (to the maximun of R570 incl VAT) each month

Debt counsellors may also charge a withdrawal fee equal to 75% of the restructuring fee, should a consumer choose to end the debt review process.

“Debt review requires adherence to a very strict monthly budget requiring consumers to drastically cut down on their spending habits.” By law, the debt review statuses can only be removed from the credit bureau database once a clearance certificate is issued,” Reynolds said.

By ignoring this restriction, the debt review process will be terminated.

Consumers who do not adhere to repaying their minimum instalments, will be subject to extended repayment terms and higher interest, Reynolds said.

Reynolds said that another common misperception is that the debt is written off under debt review. “Debt review is a process that assists over-indebted consumers by restructuring their debt and ensuring they are able to meet their monthly financial obligations. It is intended to allow consumers to stay on track with their debt repayments.”

With Compuscan figures indicating that 7 179 debt review assessments have resulted in rejection, Reynolds said that debt review is something that consumers should only consider as a last resort. “It’s essential that consumers take a realistic look at the process before deciding whether it is something they are willing to undertake.

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Thinking about debt review? Beware – they are costly