The collections people were calling you. All. The. Time. They spoke a big game saying things like, “we will have to hand you over,” and, “you're blacklisted”. You may even have been on a first name basis with the guy who wanted to repossess your car, Kobus. And now you’re under debt review as a last resort to consolidate your debt.
So, your lack of a budget has finally caught up to you. You've also realised putting everything on credit to keep the cashflow strong is not the wisest decision.
Thankfully, you've applied for debt review to help you get out of hot water and back into good standing with the credit providers. But now that the phone’s stopped ringing, your anxiety’s subsided, and you’ve made some lifestyle adjustments to live more frugally, you’re considering getting a loan to consolidate your debt instead.
Can You Take Out a Loan Under Debt Review?
If you’re undergoing debt counselling, you’ve been officially declared over-indebted. That is, your income, minus the cost of living, is less than your expenses.
While under debt review, you’re not allowed to take out any more loans (as per the National Credit Act – NCA). Reason being, this would be considered reckless lending. But some private lenders still do. Furthermore, as it’s a high risk loan, it comes at the cost of an even higher interest rate. Plus the risk of digging yourself deeper into the hole you’re trying to get out of. This is not recommended.
The point of undergoing debt review, is to become debt-free and be rehabilitated back into the credit market. This is difficult, if not impossible, if you keep adding to your debt. The debt review process includes negotiating a “single provisionally reduced monthly instalment” that is more affordable. It entails an extended payment period so, in effect, you will be in debt for a longer period of time. During the debt review period, you’ll be unable to apply for any more credit with any traditional (and reputable) financial institutions.
Can I Get Out of Debt Review?
If your financial circumstances change, or you have only a home loan or other large credit agreement remaining (that is not in arrears) under the debt rearrangement order, you can apply to rescind a debt review court order.
You'll have to demonstrate to the court your financial affordability to repay the original outstanding amounts once an application to rescind the debt review order has been made. If you’re found capable of making payments directly to the outstanding creditors, outside of the debt rearrangement order, the debt review court order will be rescinded.
At this point, if you’ve paid all the short-term loans included in the rearrangement in full, you will be issued with a clearance certificate from your debt counsellor. This allows you to re-enter the credit market. The credit bureau will also be able to remove the negative payment profile history on the affected accounts.
You’ll now be able to apply for a consolidation loan. If you only have secure debts like a home loan or car finance to pay off, however, this won’t be necessary. The secure interest rates are unlikely to be higher than that of a consolidation loan. In other words, you're already better off.