What Happens When You're Flagged For Debt Review

Contribution from David O’Brien, Found and MD at Meerkat
Reviewed by Sebastian Patel, COO and Co-Founder at Franc

You may be familiar with the term ‘debt spiral’ or ‘debt trap’, but what do these actually mean in everyday terms?

They refer to a state of over-indebtedness, where a person can’t keep up with their credit agreements, and literally feel trapped in a seemingly endless cycle of credit use.

If you’re in this scenario, you may enter debt review, but not realise how the process works, or why you’re unable to access further credit.

David O’Brien, MD of Meerkat, an authorised financial services provider (FSP) and friend of Franc, helps demystify this process.

What is debt review? 🔍

Debt review is a debt relief measure that makes sure an over-indebted consumer can get the support they need to manage their debt. It is a legislated process developed and regulated by the National Credit Regulator (NCR).

The process involves working with a debt counsellor to restructure and consolidate all of your existing debt into one regular repayment that is made to a payment distribution agency (PDA). The repayment plan is designed to be affordable to you, but also to keep your credit providers happy. David notes that many consumers in debt review can get an up to 40% reduction in the amount they pay each month on their debts.

🚩 As part of the process, your identity number is flagged as under debt review at all credit bureaus, to ensure that you’re not given any further credit while you’re in debt review.

Your new repayment plan is also formalised as an order of the court. Seeing ‘court’ may stress you out, but it’s actually there to protect you. David explains how:

“[The court order] is important, as it means that, provided you are making the payments each month under the plan, a credit provider is not allowed to repossess any of your assets, such as your car or house.”

💡

Get the full scoop on debt counselling and review. We’ve written a full guide on the process to help prepare you. If you’re in debt and looking at going this route, we recommend giving this a read.

What debt review means for your finances 🏧

Here’s what happens when you’re flagged for debt review:

You won’t be able to apply for more credit. Because of this, it’s a good idea to review and make changes to your budget so you protect yourself from having to resort to credit. 💪 Use this guide to creating a budget plan to get started.
Debt review comes with fees. Prepare for a R50 application fee, R300 administration fee, and then variable amounts for things like restructuring and investigating potential reckless lending, legal fees and after-care fees. Learn more about these fees here.

How long does it take to remove a debt review flag? ⏰

The debt review process can take between four to seven years, depending on the amount of debt you need to pay off, notes David. 🗓️

It may feel like a financial life sentence 🔐, leading you to explore how to get out of debt review once you’ve committed to it. “Many people fall prey to scammers who promise to remove the debt review flag for a fee. Invariably these scammers disappear without delivering the service,” cautions David.

To remove a debt review flag, you need to stick to your repayment plan – or, if possible, pay even more than you’ve agreed to, in order to shorten the debt review period.

Once you’ve settled your debts, you can ask for paid-up letters from your credit providers and give these to a debt review removal service like Meerkat, who can request your clearance certificate.

💡

Want to have your debt review cleared? If your debt has been cleared up, Meerkat can offer you a debt review clearance certificate. The process is streamlined, convenient and online, tailored to save you time and money, and allowing you to focus on rebuilding a strong financial future. Apply to get cleared here.

Once you have a clearance certificate, your financial options open up again. “When the [debt review] process is complete, there is no memory of the process, and [you] are entitled to access credit,” says David.

If you’ve completed debt review, debt review removal services can help you legally exit the debt review process. This goes beyond just lifting the burden of debt; it allows you to remove the debt review flag from your credit profile, opening doors to new possibilities.