Getting Out of Debt in Your 20s: What Debt Review Really Involves

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It happens fast. A personal loan for a laptop, a credit card for emergencies, three store cards, a clothing account. Two years into your first job, you owe R150,000 and most of your salary is gone before the month starts.

People in this spot ask two questions online: should I go under debt review? and what does the debt-review flag do to me? Here are both answers, starting with what you can do yourself, because debt review is a legal process that is hard to leave once you're in.

If you're still at the stage of opening your first accounts, start with our guide to building credit from zero.

Signs you're over-indebted

The National Credit Act (NCA) says you're over-indebted when the available information shows you are, or will be, unable to pay all your credit obligations on time, judged against your income, expenses and repayment history (section 79). In everyday terms, watch for:

• your debt repayments eat most of your take-home pay before rent, food and transport
• you borrow to pay other debt, or use credit for groceries
• you're paying only minimums and the balances aren't falling
• you've already missed payments or are getting collection calls

Step 1: Try these yourself first

1. List every debt. Lender, balance, interest rate, instalment, and whether you're in arrears.
2. Choose a payoff order. Pay the minimum on everything, then put every spare rand on one debt at a time.
   • Avalanche: highest interest rate first. Costs you the least overall.
   • Snowball: smallest balance first. Gives you quick wins, which helps if motivation is the problem.
3. Call your lenders before you miss a payment. Ask for a payment arrangement, such as a lower instalment for a few months or a longer term. It's easier to negotiate while you're still up to date.
4. Stop adding new debt, and build a small buffer so the next emergency doesn't go on credit. See our guide to emergency funds and tax-free savings.

What debt review is

Debt review (debt counselling) was introduced by the NCA in 2007. A registered debt counsellor assesses your finances and, if you're over-indebted, proposes a plan that reduces your monthly payments, usually by stretching the term and asking lenders for lower interest. The National Credit Regulator (NCR) stresses it is not free.

To qualify, according to the NCR:

• you must be over-indebted, or the counsellor must reject your application
• you need some disposable income to restructure
• if you're married in community of property, you must apply jointly

Only use a counsellor on the NCR's register, with an "NCRDC" registration number you're entitled to see.

How the process works

1. You apply to the counsellor by signing a Form 16 and handing over payslips, bank statements and statements for each debt.
2. The counsellor notifies your lenders and the credit bureaus. From this point, you're under debt review.
3. The counsellor assesses you and issues a Form 17.2 declaring you over-indebted or not. They must also check whether any agreement looks like reckless lending.
4. A restructuring proposal goes to your lenders. If everyone agrees, it can be made a consent order. If not, the counsellor refers it to the Magistrate's Court.
5. You pay one monthly amount, either directly to your lenders or through a registered payment distribution agent, which splits it between your lenders.

Once you've applied, section 86(10) of the NCA lets a lender end the review for its account if you're in default and 60 business days have passed, unless the matter has already been filed with a court or the National Consumer Tribunal. Get your counsellor to move quickly.

If a lender has already started legal action to enforce a particular account, that account generally can't be included.

What it costs

The NCR's published fees (from its August 2021 release, excluding VAT):

• Application fee: R50, upfront
• Administration fee: R300, upfront
• Restructuring fee: your first restructured monthly payment, capped at R8,000 (R9,000 for a joint application)
• Aftercare fee: 5% of your monthly payment, capped at R450, from month three
• Reckless lending investigation: R1,500, only if it's pursued
• Legal fees: agreed separately with the attorney

Figures quoted in the industry differ, so ask for the full fee schedule in writing before you sign, or check with the NCR.

Worked example

Example figures. Sipho, 24, takes home R14,000. He owes R150,000 across a personal loan, a credit card and three store cards, with instalments of R7,800 a month. After rent, transport and sending money home, he can afford about R4,500.

If the counsellor restructures his debt to R4,500 a month:

• Month one: the full R4,500 goes to the restructuring fee (it's below the R8,000 cap), not to his lenders.
• Later months: aftercare is 5% of R4,500, which is R225, below the R450 cap.

His payments are now manageable, but the plan runs over a much longer term, and he stays under debt review until it is paid.

The debt-review flag, explained

This is where most of the confusion lies.

• The flag goes on as soon as you apply. Your status is recorded with the credit bureaus through the NCR's system. A 2019 High Court judgment confirmed that the restriction on new credit applies from the moment your application is received.
• You can't take new credit. Section 88 says you may not take on a new credit agreement or run up further charges on a credit facility while under debt review. That includes new store cards, loans and credit-based contracts.
• Paying off your debts doesn't remove the flag by itself. You need a clearance certificate (Form 19) from your debt counsellor.
• When you get it: section 71 says the counsellor must issue it within seven days of you paying off all the restructured debts. If you have a home loan, you can get it once everything else is settled and the bond is up to date.
• Then the record is deleted. The counsellor must file the certificate with the NCR and the credit bureaus within seven days, and the bureaus must delete the debt-review record and the defaults that led to it.

If your counsellor won't issue the certificate, you can apply to the National Consumer Tribunal. If they issue it but don't file it, you can file a certified copy with the NCR yourself and lodge a complaint.

Can you change your mind?

Only in limited cases. The NCR's March 2022 withdrawal guideline says you cannot voluntarily withdraw once you've applied, even before the Form 17.2 is issued. After you've been declared over-indebted, getting out generally means asking a court to find you're no longer over-indebted. After a court order, the only exit is paying off your short-term debt and getting your Form 19.

So the belief that "you can withdraw any time before the court order" is out of date. Treat debt review as a commitment until you're paid up.

Reckless lending and prescribed debt

Reckless lending. Under section 80 of the NCA, a loan is reckless if the lender didn't do an affordability assessment, or went ahead even though the information showed you didn't understand the risks or would be over-indebted. A court can set aside all or part of the agreement or suspend it (section 83). A debt counsellor must check for this during your assessment.

Prescribed debt. According to the NCR, a debt has prescribed if for three consecutive years the lender hasn't summonsed you, you haven't acknowledged it, and you haven't paid or promised to pay. You can tell a debt collector it has prescribed, and they must stop contacting you. Be careful: acknowledging or paying a debt before the three years run out restarts the clock, and the position on payments made after prescription is legally contested. Get advice before paying anything on an old debt.

Payday loans and mashonisas

Short-term loans are legal but expensive. The NCA regulations allow up to 5% interest a month on a first short-term loan (3% on further loans in the same calendar year), plus an initiation fee of up to R1,050 and a service fee of up to R60 a month. Rolling one into the next is how a R2,000 shortfall becomes a permanent hole.

Mashonisas are worse. The NCR says it's a criminal offence for any lender to keep your ID, bank card or SASSA card as security. Borrow only from registered lenders, and report one who holds your documents to the SAPS and the NCR.

Free help

• NCR call centre: 0860 627 627, for debt-review questions and checking a counsellor is registered
• Debt counselling complaints: dccomplaints@ncr.org.za
• Your free credit report: once a year from each credit bureau, so you can see exactly what's listed against you

The short version

If you're struggling but not yet behind, list your debts, pick avalanche or snowball, and call your lenders early. If you genuinely can't pay everyone on time, debt review can protect you. But you can't take new credit, you can't withdraw once you've applied, and the flag only comes off when you're paid up and a Form 19 is filed.

Rule of thumb: try the do-it-yourself route first. Go for debt review when you're already over-indebted, not as a way to get through a tight month.