Debt review which is also called debt counseling refers to a debt solution that targets consumers who are over-indebted, leading them to struggle to manage their finances. You should note that the National Credit Act introduced the debt review to prevent consumers from being put in personal administration.
The debt rehabilitation program was also implemented to ensure that debt counselors follow ethical and strict guidelines when it comes to helping clients to improve their financial well-being. You should note that there are some pros and cons of debt review. This article discusses everything you should know about debt review.
Understanding debt review
Because of the recent economic crisis, most people now understand what debt is all about, though they usually apply for debt review for the wrong reasons. As mentioned earlier, the National Credit Act introduced debt review in 2007. The purpose for introducing it is to help people struggling with their debts and to prevent individuals from being blacklisted. This includes consumers who struggle with repayments on their cars, houses, credit cards, or are facing potential repossession.
Therefore, when you are under debt review, it means that you appoint a debt counselor who works through your income and expenses to determine whether or not you are over-indebted. If this is the case, then your debt counselor needs to inform credit bureaus and your creditors and create an interim repayment plan. This repayment plan usually lowers your debt repayment by at least 50 percent.
There is a chance that you can reduce interest rates on unsecured lending. The debt counselor submits the repayment plan to a payment distribution agency. You should note that a registered payment distribution agency is responsible for making payments to your creditors for the debt counselor.
When your creditors accept this revised repayment plan, they cannot take any legal action against you because your debts are under review. If your debts are repaid, the debt counselor gives you a clearance certificate and they will let the credit bureaus know that you are not under debt counseling. Any records showing that you were under debt review are removed from the credit record when the process concludes.
Therefore, if you are under debt review, you need to make your monthly repayments timely and see your debt lower in the long run. The process can also protect you from your creditors while you strive to become debt-free.
It’s worth mentioning that you need to stick to your repayment plan because skipping them can lead to cancelation of the agreement. You cannot get further credit when you are still in this process, so make sure that your debt has a zero balance for your credit report to be cleared.
The benefits of debt review
Firstly, the debt review process gives you the chance to consolidate your debts into single monthly payments. Besides this, the debt counselor makes sure that the repayments are affordable for you. This means that the repayments cannot affect your standard of living. A debt counselor can also help you to determine your monthly budget for daily expenses, such as bills, food, and other living expenses. Take note that your repayment plan can be based on the money you have every month. After all, you have the right to take care of your loved ones, so no creditor can demand the money that you use for purchasing the necessities.
It can be a bad experience to deal with angry creditors who are seeking their money. But when you are under debt review, a debt counselor can handle your creditors. Therefore, they can speak with your creditors for you. A debt counselor is there to protect your interest, and make sure that you should not deal directly with your creditors. This can relieve your stress so that you can focus on doing other important things in your life.
Unfortunately, there is a chance that you can lose some of your assets to creditors and debt collectors. With debt review, you can get protection right away, meaning your assets can be safe. This includes your car, house, and anything that you need to have a normal life. No doubt, debt can be hard to any person, so you need to ensure that you are under debt review so that you can lead a normal life.
In most cases, debt counselors can assist to reduce your interest rates as well as extend your repayment terms. Many creditors want to have their money back, and a debt counselor can create the best repayment plan that may benefit all parties involved. One way is to lower your interest rates so that you can deal with the larger portion of your debt. Also, extending the loan period may assist you to have more affordable repayments every month.
Another way you can benefit from a debt review is by accepting alternative ways of handling your personal finances. Reputable debt counselors can help you with this process. They can also advise you on the areas you are potentially making huge financial mistakes. You should remember that a debt counselor tends to have many years of experience assisting different people through this process. Therefore, they often have the right team to offer you support while going through the rough situation.
When you complete the debt review process, a debt counselor can issue you a clearance certificate. All credit bureaus can receive a copy of this clearance certificate. The good thing is that your account information will be removed from the records once you are debt free. With a clean record, you can start over.
Above all, you should note that debt review is not designed to help you to finance a lifestyle that is beyond your means. It’s also not a quick fix that can help you avoid paying off your debts. Instead, it’s a program that is designed to assist you to improve your financial situation. You need to work with a debt counselor so that they can help you to deal with your creditors. A debt counselor can create a good repayment plan that can allow you to make a single payment to your creditors.