Living with long-term debt and a paycheck-to-paycheck lifestyle is like wading through a quicksand; the more you move without any plan to get out, the more you’ll sink.
Over-indebtedness is a serious case in South Africa that affects millions of citizens. If you’re one of them, one of the things you’ll probably undergo is a debt review.
What is a Debt Review?
Also known as debt counselling, debt review is the solution given to over-indebted South Africans like you who are struggling to manage finances. The National Credit Act (NCA) has formalized the debt review program to prevent you from being put into administration and suffer its long-term effects.
To assist over-indebted clients like you, a debt counsellor is assigned to help recover your financial well-being. Debt counsellors have the power to negotiate better deals with creditors on your behalf.
When you’re put under debt review, you can’t incur more credit or debt until you get your clearance certificate. The NCA will also protect you from the constant hounding creditors usually do to underpaying customers.
Restructuring debt repayments is the main strategy used during debt review. With the help of the debt counsellor, interest rates are renegotiated, and existing repayment terms are adjusted to suit your financial capability. The result is a more affordable monthly repayment plan with a longer loan period. The debt review program will also make it easier for you to manage debts since you’ll focus only on paying a single consolidated debt account.
Debt Review Removal
The debt review process often takes up to 60 months to complete. Typically, you’ll be able to exit a debt review process after paying in full all debts and you’re awarded a clearance certificate.
Debt counsellors can’t terminate the review process by themselves. It’s up to you to withdraw from the debt review process by making a request to your counsellor.
You can only withdraw from the process if a court order hasn’t been given yet. If a court order for the debt review has been provided, a request for cancellation must be filed and the full cost for applying to the debt review process must be paid.
Additionally, if you withdraw from the debt review process ordered by the court, you’ll have to personally renegotiate the payment terms with your creditors. Creditors will often refuse to make new arrangements until the request for debt review cancellation has been approved.
When the debt review program is in place, there’s nothing you can do until you’ve completed it. You cannot easily request to terminate the process unless you have proof that you’re not over-indebted before the full length of the program elapses.
Law amendments now enable citizens to exit a debt review process upon satisfying the following conditions:
- All debts listed in the repayment agreement or court order has been fully repaid.
- Debts listed in the short-term credit agreement or court order, including vehicle financing, have been fully repaid. The mortgage is the only allowed debt that hasn’t been fully repaid. However, the mortgage must not be in arrears or other conditions as stated in the repayment agreement or court order.
It’s not recommended to get out of debt review if you haven’t settled the majority of your debts yet. Unless you’ve received a huge salary increase and can manage current debts without the help of a debt counsellor, you must not withdraw from the debt review program.
The best debt counsellors will assist you in exiting a debt review program. They’ll investigate the figures to see if you can handle direct payments on your own without their help.
ALSO LEARN: How to Get Loans While on Debt Review
Debt Review Clearance Certificate
The debt review clearance certificate is issued by your debt counsellor after you’ve settled all your debts as described in the debt restructure plan you signed. According to the NCA, you’re entitled to receive the debt review clearance certificate once all unsecured debt is paid up, existing mortgages and similar loan agreements are up-to-date, and all debt counselling fees have been settled.
Creditors and credit bureaus are given a copy of the debt review clearance certificate to indicate that you’ve completed the conditions of the debt restructuring plan. Defaults, judgments, and debt counselling flags will all be removed from your credit history, allowing you to borrow money again from major financial institutions.
You can’t immediately borrow money after receiving your clearance certificate, though. It will take around three months for creditors and credit bureaus to update their records. Additionally, your credit score still won’t be viable to lenders as you’ve just come out from a debt counselling program.
To make sure that everything is in order, regularly check your credit report for the first six months after receiving the debt clearance certificate. Check that all entries of default have been removed. Any discrepancy identified should be raised with the credit bureau for immediate action.
How to Remove Debt Review from ITC
There’s no other way to remove debt review from the ITC records than to satisfy the requirements of the program. Once a court order has been signed and you’re officially under debt review, the only way you can make an early exit is to satisfy all the criteria to obtain a clearance certificate.
According to a recent court order regarding an early exit from a debt review program, you can’t simply exit from the debt review process using your improved financial situation as an excuse. Even if your finances are more stable, you must complete the debt review process and just pay extra to exit earlier and satisfy the stipulated requirements for clearance. Otherwise, if you still haven’t removed your over-indebtedness, there’s no way you can exit the debt review program.
But in case you’re clear from over-indebtedness and your debt counsellor refuses to issue a clearance certificate, you can file a complaint with the National Consumer Tribunal.
How to Get Out of Debt Review Fast
If you’re over-indebted, or possibly on the brink of being one, here are strategies to apply to get out of your debt review quickly.
Pay More Every Month
Sticking with minimum repayments will eventually get you out of debt, but it may take years to pay off all of it. And that’s excluding the chances that you’ll add to its balance by making new credit card purchases.
Regardless if it’s a loan or a credit card, it’s always better to pay the balance as fast as you can. Make lump-sum payments that exceed the minimum monthly requirement. This will save you money in the long run by paying less on the interest that accumulates as time passes.
But before you make prepayments, make sure your creditor won’t penalize you by charging additional fees for this. Some creditors charge for making advanced payments or payments exceeding a certain amount per month.
Organize Your Budget
If you haven’t organized your budget before, it’s not yet too late to do so, especially now that you’re over-indebted. A 50-20-30 budgeting strategy can help minimize expenses without depriving you of a satisfying living condition.
Using this scheme, 50% of your household income must be spent on essentials like groceries, utility bills, insurances, medicine, and education. The next 20% must be focused on debt repayments, investments, and savings. The remaining 30% is extra cash which you can spend on anything like luxuries. But if you’re wise and you aim to get out of debt quickly, you can just reinvest the extra cash in paying off your debts.
You can also automate repayments and bank transfers once your income is deposited into your account. This will help you keep up-to-date with debt repayments and avoid spending money that should have been saved for more important expenses.
Use Either The Snowball or The Avalanche Method
Similar to how a snowball gets bigger and faster as it rolls down the hill, this debt repayment method helps you get the momentum to pay off all debts.
The concept is grounded on paying off debts from the smallest to the largest. All excess funds are focused on paying the smallest debt first while allocating the minimum required repayment for the other loans.
The goal is to clear the smallest debt and use the extra cash to pay off the next one. The psychological effect of being able to knock off one debt after the other reinforces your motivation to keep on repaying all loans until you become debt-free.
Even with just R500, you can start small and repay a debt of R30 000 within two years. The key is to limit expenses and close the paid off accounts to avoid the temptation of using them again.
On the other hand, the avalanche method deals with the debt with the highest interest first for a more cost-effective approach in paying off balances. Since the interest is charged on the outstanding balance, the bigger balance will generate the largest interest and put you into deeper debt. Paying the biggest debt first will greatly reduce the damaging effect of interest rates, enabling you to save more money and pay off debts faster.
Either of the two methods, namely snowball, and avalanche, will help you get out of debt faster. The systematic approach each of these techniques provides will help organize your finances and identify which debt to tackle first.
You don’t need to stick to one method, though, as you can mix both strategies. So long as you know how to focus and have the discipline to follow-through your repayment plans, you’ll get out of debt faster than you may have anticipated.
Consider Consolidating Debts
Consolidating loans lets you pool all debts you have into one account, making it easier to manage and repay. This means you don’t have to deal with individual creditors and different interest rates.
But before you consider this method, calculate how much you’ll save on interest rates. Although they usually have lower interest rates, consolidated loans often have longer repayment periods. Read also information about making advanced payments and associated fees, if there are any, to avoid getting penalized for making lump-sum payments.
Negotiate Interest Rates
Asking your lender to lower their interest rates on your credit account is possible. Many SA citizens renegotiate rates to help them repay their debts faster, so don’t be afraid to take the chance of quickly getting out of debt.
Customers with good credit scores will be more favoured by creditors over someone with a mediocre or low credit rating. Their history of on-time payments put them in a more advantageous position to demand a lower interest rate since they have a very low risk of missing out on repayments.
If your creditor won’t budge in giving you lower rates, consider doing a balance transfer.
Balance transfer is the method of moving your debts from one creditor or credit card to another. Customers do this to capture lower interest rates and better rewards offered by the new credit account.
The downside to a balance transfer is the associated processing fee. But oftentimes, creditors offer free transfers to invite cardholders to take their deals. As an added introductory bonus, interest rates may be waived anywhere from 6 to 18 months on the new account.
Look for Extra Sources of Income
Having extra cash on hand is the plain and simple solution to getting out of debt faster. Whatever repayment method you utilize, they’ll always be focused on repaying debts with the help of excess cash.
Look for a side hustle in your neighborhood or find a seasonal job for a temporary income boost. There are also a lot of online websites where you can get a side job like Upwork, NoSweat, People Per Hour, and Freelance Cape Town. Or check our post for top online business ideas in South Africa!
Sell Possessions You Don’t Need
Instead of letting things in your house sit and collect dust, why not sell them for some extra bucks? Selling unwanted and unneeded items can quickly increase your cash on hand.
A garage sale is a quick way to eliminate extra stuff for a profit. There are also online alternatives like Facebook and Shopify, and delivery services like ParcelNinja to help you ship sold items.
Having a luxurious lifestyle won’t help you get out of debt faster. If you want to be debt-free as soon as possible, cut on expenses and increase your savings.
Live on a minimalist lifestyle by avoiding eating outside, spending on clothes you don’t need, and buying items that fall under ‘wants.’ Any unnecessary spending that’s outside the realm of necessities should be cut off.
This is the best time to reduce or completely remove expensive habits like smoking or drinking. Avoid eating fast food, chomping on unhealthy snacks, or drinking costly coffee from fancy cafes. Not only will you save money in the process by eliminating them from your daily routine, but also lead the way toward a healthier lifestyle.
Paying off your debts as quickly as you can is better than repaying only the minimum and worrying over it for the rest of your life. Besides, having a frugal lifestyle is a temporary measure only to relieve you of debts immediately. Once you are debt-free, you can go back to enjoying every bit of your salary.
A little sacrifice will go a long way. Remember that every bit of cash you save can be redirected to repaying debts faster.
Whether it’s a credit card, mortgage, or personal loan you’re dealing with, the tips discussed will help you get out of debt faster. So long as you have the discipline to commit to these strategies, you can enjoy a debt-free life in no time.
There are ways to get out of debt faster, but not even one of them is an overnight solution. The process will take years and there will be many sacrifices on your part, but all will be worth the aim of becoming debt-free.