Debt review has become an increasingly common recourse for over-indebted South African consumers struggling with loans, credit cards, store accounts, and other credit commitments accumulated beyond their means to repay.
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Consumers can restructure debts into more manageable payment terms by working with a debt counselor and undergoing the formal debt review process.
However, the process poses significant lifestyle adjustments, and many clients seek additional financing to help bridge expenses during the 5+ years under debt review.
Understanding Affordability During Debt Review
Understanding the affordability and budgeting evaluation conducted by debt counselors is essential for grasping the need for supplementary loans during debt review.
Step 1) Calculate Total Client Indebtedness
Counselors tally all outstanding balances across every credit account, loan, and financial commitment. For clients with multiple loans advanced over many years, this aggregated amount often reaches startlingly high totals, frequently exceeding R300,000 to R400,000.
Step 2) Evaluate Income vs Expenses
Every cent of net monthly income is accounted for across three major categories:
Living Expenses — Rent/bond, food, utilities, transport, school fees, and other essential living costs
Debt Instalments — Required monthly payments for all credit accounts
Discretionary Expenses — Non-essential outlays in entertainment, hobbies, travel, etc.
Discretionary expenses are minimized or eliminated to divert the maximum possible repayment toward monthly debt.
Step 3) Reprioritize Repayments
Based on affordability, a reduced installment is calculated that the client can sustain each month. Counselors then reprioritize repayment schedules, extending terms if needed to achieve an affordable level.
Impacts on Client Cash Flow
While this process provides welcome payment relief, clients are left with very tight budgets, often five years or longer, until debts are repaid. Eliminating any discretionary expenses can pose serious lifestyle adjustments, making debt review arduous.
Clients accustomed to dining out, taking holidays, replacing aging cars, and so forth must put many aspirations on hold. This cash flow pinch explains why many clients seek secondary financing to ease the debt review process.
Whether needing a cheap car, emergency household repairs, or computers for school, supplementary credit becomes attractive, provided it aligns with affordability. Counselors are advisory in any additional borrowing to prevent worsening client debt levels.
Common Myths and Misconceptions
Contrary to common misperceptions, clients undergoing debt review are allowed to access additional finance despite tighter budgets. However, strict criteria apply to any auxiliary lending to prevent compromising the restructuring and repayment efforts.
Myth 1 — No Access to Additional Credit
It's a common myth that clients lose all access to loans or additional finance facilities once they enter debt review and finish the program. However, numerous lenders offer specialized debt counseling loan products, granted borrowers meet suitable risk profile requirements.
Counselors often advise such options for emergency expenses. The key caveat is that affordable installments matching client circumstances must be maintained across any new loans undertaken while under debt counseling.
Myth 2 — Debt Review Appears on All Credit Records
Consumers often worry that undergoing debt counseling will negatively impact credit records, hampering future loan applications after exiting the program. However, this only applies to credit bureau records—debt reviews do not appear on bank credit histories.
Many lenders, including several central banks, use only internal records when evaluating loan applicants. A previous debt review will not necessarily impact applications after exiting counseling. Clients can potentially access reasonable credit rates sooner than expected.
Myth 3 — All Debt Must be Repaid First
One common misperception is that counsellors only allow new borrowing once completing the full debt review program, including repayment of all outstanding balances.
Certainly, exercising caution with additional finance is advisable, and some debt counseling providers prefer client debts to be fully repaid first. However, consumers can access suitable new lending even before completing the counseling process in certain circumstances, provided their unique situation allows.
Types of Loans for Clients Under Debt Review
While expensive, unsecured credit like personal loans or credit cards is never advised, responsible lending for justifiable purposes can assist cash-strapped clients on their journey to financial wellness. Some examples of advisable borrowing include:
Emergency Loans
Coping with unforeseen calamities like urgent medical treatment or household emergencies can become highly stressful without adequate savings.
Many counselors guide clients toward lenders facilitating small emergency loans to cover pressing financial needs between R500 and R10,000 or more if required. These loans help avoid accumulating additional expensive debt.
Asset-backed Lending
Some lenders offer financing secured against existing assets that debt review clients own free and clear. This includes financing vehicles, whereby the car is collateral rather than just the client's creditworthiness. Secured lending allows clients to leverage assets responsibly to help their situation during debt counseling.
Debt Consolidation
Certain consolidation loans that repay other debts first with lower net interest can benefit cash flow. By rolling multiple expensive debts into one facility, overall installments decrease. However, approval is contingent on improving the client's circumstances, not worsening their position.
Developmental Credit
A unique lending segment aims to uplift South Africans needing support beyond just credit. Small “developmental loans” from community-focused lenders offer finance paired with financial literacy mentoring.
This helps borrowers make the most of opportunities accessed through such loans, aligning with goals to eventually exit debt review and rehabilitation.
In all the above situations, counselors facilitate clients' applications for loans most responsibly suited to their unique situation. The key is open advisor-client engagement so borrowing aligns with counseling efforts rather than detracting from them.
Partnering With Specialist Debt Review Loan Providers
To ethically meet client cash flow needs, many counselors now partner with lenders specializing in financing debt review consumers. These lenders structure products catering to such clients' circumstances at more affordable rates than standard personal loans.
Partners understand that counseled clients represent motivated borrowers working to better their situation under guidance. Several notable firms have built a reputation for facilitating loans to assist South Africans on their journey to financial health.
For example, some leading sites that provide loans for debt review clients offer unique debt review loan products supporting consumers across their counseling journey:
- Small emergency loans from R500 to R5000
- Larger personal loans up to R250,000
- Insurance to protect income and loan repayments
- Ongoing financial literacy engagement
By integrating protection, education and competitive credit, this lending approach aligns with the goals of debt counselling. Hundreds of South African consumers have now accessed such loans to ease cash constraints during counseling.
The key advantage of lenders like these is deep familiarity with the debt review landscape. Having assisted clients throughout the full debt rehabilitation process for years, their advisors provide practical loan options suiting unique needs.
Their experience allows them to assess real risks based on each client's attitudes and circumstances rather than just credit records.
Willingness to repay is evaluated holistically across factors like employment stability, other household income, ongoing budgeting practices, and openness. This facilitates more consumers qualifying for appropriate lending than mainstream rigid credit checks allow.
Best Practices for Clients Seeking Debt Review Loans
If evaluating additional borrowing during debt counseling, several best practices enable clients to access loans responsibly without hindering restructuring efforts:
1. Consult your debt counselor first – Advisors will guide your situation and offer advice only once, understanding your unique requirements.
2. Evaluate loan purpose critically – Consider if borrowing is absolutely necessary or merely desired. Avoid accumulating unessential debt.
3. Compare multiple lender options– Interest rates, fees, and repayment terms vary greatly. Compare all policies in detail.
4. Privilege flexible terms – Choose loans allowing repayments to fluctuate alongside variable income.
5. Favour lenders respecting budget limits – Only partner with lenders willing to extend credit aligned to affordability considerations, not maximum lending ability.
6. Review all policies and contracts thoroughly. Before signing agreements, Ensure complete clarity on interest calculations, the sequence of debt repayments, and any clauses impacting credit records.
7. Make all repayments on time – Commit to consistent on-time payments to avoid worsening creditworthiness.
Following the above best practices allows clients to integrate supplementary borrowing with their broader debt rehabilitation journey successfully.
Final Words on Debt Review
While debt review imposes austerity measures on client lifestyles, additional finance accessed responsibly can ease cash constraints if used judiciously. Numerous loan providers now cater to sensible lending aligned with debt counseling efforts rather than working against them.
By partnering with specialists conversant in uniquely tailored products, over-indebted South African consumers can receive a helping hand through challenging times on their journey back to financial health. With the proper guidance, borrowing and effective debt counseling go hand in hand.
