Personal Loans & Credit Cards
Personal loans, credit cards, overdrafts and store accounts are common forms of unsecured credit in South Africa. When repayments become unaffordable, consumers should understand the consequences of missed payments and the options available for dealing with excessive debt.
Personal Loans, Credit Cards and Debt Review: A South African Guide
Personal loans, credit cards, overdrafts and store accounts are forms of unsecured credit that can generally be included in debt review when they become unaffordable. A registered debt counsellor restructures these accounts into one monthly payment, and interest rates may be negotiated down as part of the process. This guide explains how each type of unsecured debt is handled and what consumers should expect.
Can Personal Loans Be Included in Debt Review?
Yes, personal loans can generally be included in debt review. Personal loans are unsecured credit agreements governed by the National Credit Act, and a registered debt counsellor can restructure the repayments as part of your overall debt-review plan. The exact terms depend on your affordability, the credit provider and the applicable legal process.
What Happens to Credit Cards Under Debt Review?
Under debt review, your credit card accounts are included in the restructured repayment plan and you generally cannot use the cards for new purchases. Your debt counsellor proposes revised repayment terms to the card provider, and payments are made through a Payment Distribution Agency. The cards are typically closed to further spending while you repay the outstanding balances.
Can Debt Review Reduce Personal Loan Repayments?
Debt review may reduce personal loan repayments by extending the repayment term and, where creditors agree, negotiating lower interest rates. The outcome depends on your affordability, the credit providers involved and the applicable restructuring rules. Reductions are not guaranteed but are a common feature of formal debt-review proposals.
Can Interest Rates on Personal Loans Be Reduced Under Debt Review?
Interest rates on personal loans may be reduced under debt review where the credit provider agrees as part of the restructuring proposal. Reductions are not automatic or guaranteed; they depend on the creditor, the applicable industry rules and the consumer's individual circumstances. Where rates are reduced, more of each payment goes toward the capital balance.
Can Credit Card Interest Be Reduced Under Debt Review?
Credit card interest may be reduced under debt review where the card provider agrees as part of the restructuring proposal. Because credit card rates are often high, reductions can significantly increase the portion of each payment that goes toward the capital balance. Reductions are not guaranteed and depend on the creditor and the applicable restructuring rules.
What Happens If I Cannot Afford My Personal Loan Payments?
If you cannot afford your personal loan payments, the worst response is to ignore the problem. Contact the credit provider to discuss options, and consider a financial assessment to determine whether debt review may be appropriate. Acting early — before legal proceedings advance — generally gives you more options than waiting until summonses arrive.
What Happens If I Stop Paying My Credit Card?
If you stop paying your credit card, the account falls into arrears, late-payment interest and fees may be added, and the provider may hand the account to debt collectors or begin legal proceedings. Your credit profile is likely to be negatively affected. It is far better to contact the provider or seek a financial assessment before payments stop.
Can You Include Multiple Loans in Debt Review?
Yes, you can include multiple loans in debt review. In fact, debt review is designed for consumers with several unaffordable credit agreements. All applicable loans are combined into a single restructured repayment plan, with one consolidated monthly payment distributed to your creditors through a Payment Distribution Agency.
Personal Loan vs Debt Consolidation vs Debt Review
A personal loan is a single credit agreement; debt consolidation is a new loan taken to pay off multiple smaller debts; and debt review is a statutory process that restructures existing debts without new borrowing. Each suits a different situation: consolidation suits consumers who still qualify for credit, while debt review is designed for those who are over-indebted.
Can Short-Term Loans Be Included in Debt Review?
Short-term loans can generally be included in debt review if they are credit agreements governed by the National Credit Act. Your debt counsellor will restructure the repayment as part of your overall plan. Be cautious of unregistered lenders, whose agreements may fall outside the NCA and cannot always be included.
Can Overdraft Debt Be Included in Debt Review?
Overdraft debt may be included in debt review depending on the nature of the agreement and the credit provider. Overdrafts are a form of credit facility, and where they qualify as credit agreements under the National Credit Act, your debt counsellor can restructure the repayment. The treatment varies by provider, so discuss your specific overdraft with your counsellor.
What Happens to Store Cards Under Debt Review?
Store cards are included in debt review and restructured like other unsecured credit. You generally cannot continue using the cards for new purchases, and the outstanding balances are repaid through the consolidated monthly payment. Interest rates may be renegotiated where the provider agrees.
Is Taking Another Loan to Pay Existing Debt a Good Idea?
Taking another loan to pay existing debt is usually not a good idea if you are already over-indebted. It increases your total debt, adds new interest and fees, and can extend the problem rather than solve it. If your existing debt is unaffordable, debt review — which restructures existing debts without new borrowing — is generally a more appropriate option.
How Do I Know If I Have Too Much Unsecured Debt?
You may have too much unsecured debt if your combined monthly repayments on personal loans, credit cards, store cards and overdrafts leave little for essentials, if you use one credit account to pay another, or if you have no buffer for emergencies. A financial assessment can confirm whether you are over-indebted and whether debt review may help.