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Mixed race couple reading about the differences between debt review and debt mediation in South Africa

Debt Review vs Debt Mediation

Although mediation in South Africa may seem like a viable option for many overly indebted consumers, it’s a good idea to know more about it and exactly what it entails.

In this article, we’re going to look at what debt mediation is, how it differs from debt review, and why it isn’t exactly a suitable debt relief avenue.

Let’s get started.

What is debt mediation?

Debt mediation is the process whereby a consumer and credit provider negotiate a reduction of monthly repayment commitments, as well as the interest being charged.

The process of mediation works by contacting a lawyer or company that specialises in debt mediation. Once you have reached out to said company/lawyer, you will then be required to sign an agreement as proof to your credit providers. They will then assess your financial situation in order to determine whether or not you qualify for mediation.

Debt review vs debt mediation

Debt review or debt counseling is a formal and legal debt management process that was introduced by the National Credit Act back in 2007. The process is administered by debt counselors who are responsible for determining if you are over-indebted or not. The debt counselor will then negotiate with your credit providers to reduce interest rates and debt repayments.

Debt mediation is a process that works similar to debt review but without some of the implications. The main difference between debt review and debt mediation is that agreements would not go to court to become legally binding like they do under debt counseling.

Is debt mediation a good idea?

While there are some companies that offer debt mediation, it is generally not considered a good idea. In 2014, the National Credit Regulator issued a circular that denounced the act due to the fact that debt mediation was seen to undermine the NCA (National Credit Act) and consumers.

With debt mediation, a credit provider can change their mind at any time and request that original repayment terms be adhered to. Additionally, you as the consumer are not protected against the credit provider repossessing your assets.

If you’re struggling to ease your financial pressures, debt mediation is not an advisable move. The fact that it naturally evades the provisions of the National Credit Act is a big red flag.

The Difference Between Debt Counselling & Debt Consolidation

In this article we’re going to consider the dissimilarities of debt counselling and debt consolidation, as well as the advantages of each.

Let’s get started.

Debt Counselling

Debt counselling, also referred to as debt review, is a legal debt solution that aims to help over-indebted individuals who find themselves drowning in debt.

If an individual signs up for debt counselling, they will be assigned a debt counsellor, who will be responsible for reaching out to creditors to negotiate lower interest rates and smaller repayment amounts.

Through the restructuring of debt in accordance with an approved plan, South Africans who find themselves on the deeper side of debt can pull themselves out of a debt trap.

The benefit of debt counselling

Those who undergo debt counselling can rest assured knowing that a debt expert is assisting them with their debt, and that their creditors will no longer be permitted to take action against them or contact them whilst under debt review.

It must be noted that individuals who undergo debt counselling will not be allowed to access any new credit until their debt counselling process has come to a close and their debt is settled.

When is debt counselling the right option?

Debt counselling could be the right option when individuals are already at odds with their creditors; likely being contacted numerous times and been warned about the legal implications of missed payments.

Debt Consolidation

People who have a range of debt repayments that they need to pay each month, each with varying interest rates and repayment terms, may find it difficult to stay on top of everything.

Through debt consolidation, individuals struggling with debt can take out a debt consolidation loan and combine their debt into a single monthly payment with one interest rate and single repayment term.

The benefit of debt consolidation

Through debt consolidation, individuals will end up with an overall lower interest rate, with a simpler debt structure going forward. This will make repayments far simpler and more cohesive.

However, with lowered interest rates comes an overall longer repayment term, with no access to legal assistance if creditors decide to act. With debt consolidation, individuals will still have access to new credit, unlike debt counselling.

When is debt consolidation the right option?

Debt consolidation may be the right option for individuals who have been scrambling to meet their debt obligations, and simply need a light push in the right direction. Through the restructuring of debt, individuals who undergo debt consolidation are likely to make ends meet more comfortably.

What To Do If Your Property Is Being Repossessed

For a lot of people, owning a home is a major achievement, representing many years of hard work. Property ownership forms part of a solid investment portfolio, and for many, losing a home can deem absolutely devasting.

If you are under a great deal of financial pressure and worried about falling into arrears on your home loan repayments, you need to act quickly and smartly in order to prevent your property from being repossessed.

In this article we’re going to take a look at three ways that you can be proactive if your property is being repossessed.

3 Things to Do If Your Property Is Being Repossessed

Here are the three main things you should do if and when your property is being repossessed.

#1 – Apply for Debt Counselling

By applying for debt counselling, you will have the opportunity to sell your property while only having to pay 80% of the usual payment. Through this, you gain valuable time required to release the maximum property value.

#2 – Apply for Voluntary Surrender of Estate

The aim of voluntary surrender of estate is to equally distribute the proceeds of an individual’s assets to his/her creditors. If your outstanding bond exceeds the value that your property can be sold for, you can apply for sequestration and walk away from your debt.

#3 – Oppose the Judgement

If there is no value in the property, then a valid option is to oppose the judgement. However, if your remaining bond is greater than the value of your property, you are able to apply for sequestration and not be responsible for debt.

Close-up of A Businessperson's Hand Balancing Stacked Coins On Wooden Seesaw With Finger Over Desk

How To Ease Your Financial Pressures

Do you feel like you’re in constant financial distress? That you’re living from paycheck-to-paycheck, and it simply causes you too much stress? Financial pressure has become a widespread issue. However, there are things you can do about it.

In this article we’re going to outline some methods that can help ease your financial pressure.

Let’s get started.

Know Your Income

Do you sometimes overestimate your salary, thinking that you earn more than you actually do because you forget about deductions? You’re not alone, we all do it sometimes.

The first step to easing your financial pressures is to know your income, post deductions. A good way of doing this is by logging into your banking app and downloading your three-month bank statement. Once you’ve done that, take a good look at your statements and develop a solid understanding of the actual income that you have to spend.

Remember – never spend more money than you earn.

Understand Your Expenses

Once you have a clearer understanding of your income, you need to understand your expenses. Broadly speaking, your expenses can be broken down into two main categories: living expenses and luxury expenses.

Living Expenses

These expenses are the basic things that you simply cannot live without. For example, housing and food.

Take a good look at your living expenses and keep a close eye on them; sometimes you can tighten up your spending without knowing it. Sure, food is a living expense, but you can lessen some of your living expenses by shopping smartly and deal hunting.

Luxury Expenses

These are deemed non-essential items that you can live without. Generally, luxury items are things such as:

Eating out
Holidays
Expensive goods
Entertainment

And general splurging on things that you don’t need.

When it comes to your expenses, every little bit counts. It may not seem like a lot saving a few rands on a specific item, but when you’re saving on multiple items, it all adds up.

A good rule of thumb is to not spend money on luxury expenses until you have paid all of your living expenses.

Draw Up a Budget

One of the easiest ways to manage your expenses is to draw up a budget plan.

A budget plan is a summary that compares and tracks your income and expenses for a defined period. This will give you an accurate overview of how much money you expect to bring in and compare it to your required expenses.

Although a budget is widely seen as a negative thing, it most certainly is not. Instead of seeing it so strictly as a budget, try to see it as a tool for helping you achieve your financial goals.

Remember – a budget plan is only as successful as your diligence in sticking to it.

Know When to Seek Help

Although there are steps that you can take to ease your financial pressures, an important part of doing so is knowing when to seek help.

Debt solutions are there to help you create a financially healthier life through legal and affordable means. Through debt counselling, you can get your budget under control by implementing a new repayment plan with creditors.

African couple seeking help from a debt counsellor

Debt Counselling – All you need to know

Debt has become an increasingly significant problem in South Africa. With COVID-19 wreaking havoc on people’s livelihoods, many people have fallen behind on their financial obligations.

However, what many people don’t know is that it is not the end of the world, and the financial stress that they face can be navigated through certain programmes. One of which is something known as debt counselling.

In this article we’re going to explore the topic of debt counselling, looking at how it works and what you can expect.

Let’s get started.

What is Debt Counselling?

Debt counselling is a process designed to help over-indebted South Africans regain control of their finances through the restructuring of their debt in accordance with a legal, approved plan.

If you find yourself in a situation where you are overly indebted and struggling with your finances, a debt relief counsellor can negotiate with your credit providers to lower your interest rates and reduce your monthly installments.

How Does Debt Counselling Work?

If your income-to-debt ratio is more than 43%, or if more than half of your income goes towards your debt repayments, you can seek help from a debt counsellor. Once you’ve taken it upon yourself to reach out to a debt counsellor, the following process is followed:

Step 1:

A debt counselor will examine the extent of your debt. This is done by measuring your liabilities and expenses against your income.

Step 2:

After a debt counsellor has concluded that you are over-indebted, he/she will begin the process of applying for a court order. This court order will halt all of your creditors from contacting you.

Step 3:

Thereafter, your chosen debt counsellor will reach out to the credit bureaus and flag you as undergoing debt counselling; this will all take place within 30 days of your application.

Step 4:

Your debt counsellor will negotiate with your creditors on your behalf to lower your interest rates on certain credit agreements, in addition to extending your payment terms.

How Long Does Debt Counselling Last?

Debt counselling will last for between three and five years, depending on how indebted you are, as well as how much you’re able to afford to repay on a monthly basis.

Each debt counselling case undergoes an individual assessment; as such, the time frame might not be the same for person A as it is for person B.

What Happens After debt counselling?

Once you have you paid all of your debts in accordance with the stipulated restructuring plan devised by your debt counsellor, you will receive a clearance certificate showing that you have successfully completed the debt counselling programme.

Once you have been issued with said certificate, your debt counsellor will send it to the various credit bureaus in order for them to remove you from their list of those under debt counselling.

At the end of the day, life is progressively returning to normal as pandemic induced lockdowns ease, but many people still face the bleak reality of being overindebted.

However, there are programmes out there intended to assist over-indebted consumers that are struggling to commit to their repayments; debt counselling is one these programmes that can help you restructure your debts to make future repayments more manageable.