Debt review explained: how it works, what it costs and how it ends

What is debt review?

Debt review, also called debt counselling, is a formal process in section 86 of the National Credit Act. You apply to a debt counsellor registered with the National Credit Regulator (NCR). If the counsellor finds you over-indebted, a new and lower payment plan is proposed to your credit providers. The counsellor cannot declare you over-indebted; only a court can do that.

It is not debt consolidation. Consolidation replaces several debts with one new loan. Debt review leaves your agreements as they are and rearranges how you repay them. If you are weighing the two, read about debt consolidation loans.

How does debt review work, step by step?

You apply, the counsellor tests your figures, and the proposal goes to your creditors or to a Magistrate's Court. From then on you make a single monthly payment to a payment distribution agency (PDA), which pays your creditors.

It starts with choosing a registered counsellor; check the name on the NCR register first, as our guide to checking NCR registration explains. You then complete Form 16, attach proof of your income and debts, and pay the R50 application fee. The counsellor gives you proof of receipt and, within 5 business days, sends Form 17.1 to your credit providers and the credit bureaus.

Then the counsellor goes through your figures. Income, expenses and debts are all verified, and a living-expense figure that looks generous may be cut. The Act gives the counsellor 30 business days from receipt of the application to decide. Form 17.2 reports the outcome. If you are not over-indebted, the application is rejected. If you are not over-indebted but struggling, the counsellor can suggest a voluntary rearrangement. If you are over-indebted, the counsellor asks a court to rearrange your debts.

If you and every credit provider accept the proposal, it becomes a consent order. If a single provider refuses, the Magistrate's Court decides. From the first month of the plan your one payment goes to the PDA, which splits it between creditors. When the last obligation is met the counsellor issues the clearance certificate (Form 19) within 7 days and files it with the register and the bureaus within a further 7.

How much does debt review cost?

Costs come in layers: a once-off application fee, a restructuring fee, a legal fee if a consent order is needed, and monthly aftercare and PDA charges. FNB's debt review page lists the figures below. Fee guidelines get updated, so ask your counsellor for every charge in writing before you sign.

If the counsellor does not put proposals to your creditors, or refer the matter to a court, within 60 business days, FNB's page says the fee must be refunded except for the application fee. Be wary of any company that wants a large payment before it has done any work. The NCR can take complaints on 0860 627 627, as its NCR contact page shows.

Can you take new credit during debt review?

No. Under section 88, a consumer who has applied for debt review may not take on further charges under a credit facility or enter into any further credit agreement, apart from a consolidation agreement. The bar lifts when the counsellor rejects the application and you do not go to court, when a court finds you are not over-indebted, or when the rearranged obligations are fully paid.

That makes "loans for debt review clients" a doubtful offer. A registered lender should not provide one, and a company that asks for money up front certainly should not be trusted. For lending to people with weaker records, see loans for bad credit.

What does debt review do to your credit record?

The bureaus receive the Form 17.1 notice, so your report shows the debt review. That is why new credit is hard to get while it runs. South African law has no official blacklist; bureaus hold payment records, judgments and notices like this one. After the clearance certificate is filed, the debt review record is removed. If your application is rejected, the bureaus must remove it within 5 business days. To see what your own report says, read how to check your credit score for free.

How do you get out of debt review early?

The normal way out is the clearance certificate once the plan is paid. Leaving earlier is possible, but it is not a simple cancellation. You generally settle the debts, or the review is ended by a court or by the creditors' own rights under the Act. Talk it through with your counsellor first, because the route depends on where your application stands.

• If the counsellor rejects your application, you may apply to a Magistrate's Court yourself, with the court's leave. The application uses Form 18.
• A credit provider can terminate the review only if you are in default and at least 60 business days have passed since you applied.
• If you have paid everything and the counsellor still will not issue a certificate, you can raise a dispute with the NCR.
• If your income drops, tell the counsellor before you underpay. Falling behind on the plan removes the protection.

"Debt review removal" usually means removing the bureau record, and that happens when the certificate is filed or a rejected application is cleared. No company can do it for you outside that process, whatever it charges.