Is debt review a good idea? It depends on your counsellor

Whether debt review is a good idea depends less on the process than on the counsellor who runs it. The rules are the same for everyone; the honesty, the planning and the follow-through are not. Here is how to weigh it up, and how to screen a counsellor before you sign anything.

What are the disadvantages of debt review?

The main disadvantages are that you cannot take on new credit while you are under review, the process is flagged on your credit record, and you must stick to one repayment plan for years. Your store and credit card accounts are usually closed. There are also fees, which are regulated, so ask any counsellor for the current fee schedule in writing before you commit. Fall behind on the plan payments and you can lose the protection the process gives you.

In exchange you get legal protection from creditors, one reduced instalment instead of many, and a clear path out of debt. For someone already missing payments, that trade-off usually makes sense. If an emergency hits while you are under review you cannot borrow your way out, but loans for people under debt review explains what you can do instead.

Why your counsellor decides whether it turns out well

Debt review is not one uniform product: the counsellor you sign with shapes how far your instalment drops, how long you stay in, and how quickly your questions get answered once you have signed.

So screen before you commit, the way you would screen anyone you are about to pay. Start by comparing registered debt counsellors so that you are phoning them, rather than waiting for whoever phones you. Reading up on the best debt review companies in South Africa also gives you a feel for how established practices explain themselves.

Watch for the behaviours that should end a conversation:

• pressure to sign on the first call, before they have seen your payslips or statements
• promises of the biggest instalment cut before anyone has done the numbers
• vagueness about the fees, or about how you exit the process
• a guarantee of a specific outcome, which nobody can honestly give you

Signing with whoever cold-calls you first is one of the most common mistakes. Being first to your phone says nothing about competence, and the keenest salesperson is rarely the best adviser. A reputable counsellor will not mind you taking a few days to decide. If someone has already rushed you into signing and you regret it, you may still be able to remove the debt review before you pay anyone.

Are you blacklisted while under debt review?

No, being under debt review is not the same as being blacklisted, but it is noted on your credit record, and while it lasts the effect is similar: lenders can see it and will usually decline you new credit. The difference comes afterwards. Because you are paying through a regulated plan rather than ignoring the debt, the flag is removed once you finish and are issued a clearance certificate. Ask your counsellor upfront to confirm, in writing, that they will help you clear your record at the end.

Does debt review affect your job?

For most people it does not, because an employer only sees your status if they run a credit check, and those checks are mostly limited to jobs involving money or sensitive information. Even then, being under review generally looks better than skipping payments, because it shows you are dealing with the problem rather than hiding from it.

How long can you stay under debt review?

In most cases you stay under review until the debts in your plan are settled, so the plan itself matters more than any official time limit. A good counsellor will negotiate interest reductions and build in a realistic end date, and will tell you roughly when you can expect to finish. Ask that question before you sign. A vague answer is a red flag, not a small detail.

Can you buy a car after debt review?

Yes, once you have finished, your clearance certificate has been issued and your record updated, you can apply for vehicle finance like anyone else. Lenders will still look at your income, expenses and repayment history, and a completed review with a clean record can count in your favour. While you are still in the process, though, new credit is off the table.

What is the smartest way to pay off debt?

In most cases the smartest way is to free up money in your budget and pay more than the minimum on your most expensive debt first. Debt review is for the point where that has stopped being possible, when essentials and debt payments no longer fit in one payslip. A good counsellor will tell you honestly if you are not there yet. A bad one signs everybody.

Before you commit to anyone, shortlist registered counsellors and see what other clients say about them. Then ask each one two questions: 'when will I be finished, and what happens if I cannot make a payment one month?' How they answer tells you more than any advert can.

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