When I am under debt review, will my outstanding debt keep growing?

If you're currently struggling with mounting debt, it’s crucial to understand how interest works and how debt can escalate over time if not managed properly. At DebtBusters, we are here to help you break free from the cycle of debt and take back control of your financial future.

What is Debt Review?

Debt review in South Africa was implemented in 2007, as a means for regulating unethical debt management companies and practices. DebtBusters is a debt management company situated in Cape Town, which targets South African consumers struggling with debt.

Debt Review before 2011

In the past, when under debt review in South Africa, it may have been possible for outstanding debt to keep growing. However, according to the new industry rules, debt counselling rules engine that was implemented in February 2011, the problem has been eliminated and when you are under debt review, your outstanding debt will not continue to keep growing.

Here’s a more detailed look at how debt counselling works and why it helps stop your debt from growing:

1. Interest Rates Are Frozen

When you enter into debt counselling, your creditors are no longer allowed to charge you additional interest or fees on your existing debts. This is one of the most significant benefits of debt counselling. 

DebtBusters expert financial consultants are responsible for implementing debt review in an ethical and proficient manner. With an acceptable debt repayment plan, DebtBusters has mandates with the banks in South Africa, as well as a vast array of other Credit Providers, to reduce interest rates as low as 0% for unsecured debt, and as low as 7.5% for secured debt (repo +2%). Once DebtBusters is able to secure such an agreement, debts will certainly be reduced over time.

2. Payments Are Restructured

Under debt counselling, your monthly debt repayments are restructured into one affordable payment. This payment plan is based on your current financial situation, ensuring that you can meet your basic living expenses while still making steady progress on reducing your debt.

Because your repayments are adjusted to suit your budget, you won’t have to rely on taking out more credit to cover shortfalls. This prevents the risk of your debt growing further due to additional loans or credit lines.

3. Legal Protection From Creditors

One of the key benefits of debt counselling is that it provides legal protection from creditors. Once you are under the debt counselling process, creditors are no longer allowed to take legal action against you or repossess your assets. This protects you from being forced into a worse financial situation and helps prevent further growth of your debt.

While in debt counselling, as long as you adhere to the payment plan, your debt will not grow, and you can focus on working towards becoming debt-free.

Will credit providers accept the lower interest rate repayment?

Approximately 80% of DebtBusters clients solve inside debt counselling rules engine and the remaining 10% solve outside debt counselling rules engine. This means DebtBusters manage to make agreements with credit providers on behalf of over 90% of their clients, extending terms and reducing interest rates to 0% if necessary.

How long does the Debt Counselling process take?

This allows DebtBusters to liberate the vast majority of debt review clients in South Africa from unsecured debt within 60 months.

The first step involves sending proposals to the banks within 20 business days of applying for debt review.

Many banks will amend the interest rates on the client’s debt from the date that they accept the proposal, thereby halting the growth of debt.

Keep in mind your debt keeps growing when:

1. Interest accumulates

One of the primary reasons debt grows is due to interest. If you have outstanding balances on credit cards, personal loans, or other high-interest debt, you may notice that even when you make payments, your debt doesn’t seem to shrink much. That’s because interest is continuously being added to your balance, making it difficult to pay off the original amount owed.

The longer you take to pay off your debt, the more interest you’ll accrue, which is why it’s vital to stay on top of repayments. High-interest debts, such as store accounts and credit cards, tend to accumulate interest rapidly. Over time, this interest can add up significantly, making it harder to reduce the principal amount.

2. You fall into the minimum payments trap

Another reason your debt may keep growing is that making only the minimum payments each month often isn’t enough to reduce your debt significantly. Minimum payments usually cover just the interest, leaving the principal amount untouched. In some cases, the debt may even continue to grow if the minimum payment doesn’t fully cover the interest.

3. Late fees and penalties

Missing payments or paying late can lead to additional fees and penalties, which will cause your debt to grow even faster. In many cases, creditors charge late fees if you don’t make a payment by the due date, and these fees are added to your balance, compounding the problem. In extreme cases, creditors might raise your interest rate as a penalty for missed payments, further increasing the cost of your debt.

Need More Information About Debt Counselling?

If you’re concerned about your debt growing or need more information about how debt counselling can help, contact DebtBusters today. Our team of experts will assess your financial situation and provide you with a solution that stops your debt from escalating and puts you on the road to financial freedom.

Get in touch via our contact page or learn more about our debt counselling service today.