Disadvantages of debt review and debt counselling

While you are under debt review, you cannot legally take new credit - no loans, store cards, credit cards or even some cellphone contracts. This is the point: new debt would undo your plan. But it bites if you have an emergency or want to buy a car or home during the process.

Ignore any advert offering 'loans for debt review clients'. Taking such a loan is generally not allowed under your plan and these offers are often predatory. The safe route is to finish review first.

A debt-review status flag appears on your credit profile from the day you apply until you finish. Lenders see it and will decline new credit. It is not a default or judgment, and it is removed when you get your clearance certificate, but while it is there your access to credit is closed.

Debt review is not free. Under the NCR fee guideline you pay a R50 application fee and R300 administration fee upfront, a once-off restructuring fee in month one (the distributable amount or R8,000, whichever is lower; R9,000 if married in community of property) and a monthly after-care fee of 5% of the distributable amount, capped at R450 (amounts exclude VAT). These mean a slice of your money goes to running costs, not your debt. A counsellor must disclose all fees to you in writing.

Debt review is not a quick fix. Unsecured debts usually clear faster than a home loan, but if your home loan is in the plan it can run much longer because you are paying a large asset off at a reduced rate. You need to commit to the plan for its full term to reach your clearance certificate.

Once a magistrate's court has granted the order, you cannot simply cancel. There is no way to withdraw once you have applied, and no court can rescind the order. The only exit is to pay the debts in the plan (a home loan can remain if it is up to date) and receive a clearance certificate. So be sure debt review is right for you before you sign Form 16.

Debt review restructures credit agreements covered by the National Credit Act. It only covers credit agreements under the National Credit Act, so it does not cover debts that are not credit agreements, such as tax owed to SARS or maintenance. Ask your counsellor whether other debts, such as municipal or informal loans, qualify. If a big chunk of your debt sits outside the NCA, debt review may not solve the whole problem.