Is Debt Review a Good Idea? How It Can Make or Break Your Credit Score
Is Debt Review a Good Idea? How It Can Make or Break Your Credit Score
Debt review is often seen as a lifeline for South Africans who are drowning in debt, but it also comes with important consequences for your credit profile.
“Is debt review a good idea?” Debt Review is not permanent; instead, it’s a pathway to financial recovery.
So, is debt review a good idea? The answer depends on your situation, your goals, and how you manage the process. In this article, we’ll unpack what debt review is, how it impacts your credit score, and when it can help or hurt your financial future.
What Is Debt Review?
formal legal process introduced by the National Credit Act (NCA). It allows over-indebted consumers to restructure their debt into one affordable monthly repayment, while also providing protection from legal action by creditors.
During debt review:
- A registered debt counsellor assesses your finances.
- Your debts are consolidated into a manageable repayment plan.
- Creditors cannot take legal action against you (once under review).
- You are flagged at credit bureaus as being “under debt review.”
So, Is Debt Review a Good Idea?
The big question many people ask is: is debt review a good idea if you are struggling financially? Here are both sides of the coin.
The Benefits of Debt Review
- Immediate Legal Protection: Creditors cannot take legal action (repossessing your house or vehicle) while you’re under debt review.
- Structured Repayment: You’ll make one consolidated monthly payment, reducing the risk of defaults.
- Credit Discipline: By sticking to the plan, you build a history of consistent repayment.
- Debt-free journey: Once complete, the debt review flag is lifted, and you can rebuild your credit score again.
- Stress reduction: Knowing your debt is under control provides peace of mind.
The Drawbacks of Debt Review
- Credit Bureau Flag: A “debt review” status will appear on your credit report until you’ve settled your debts.
- Credit score Impact: Your profile shows a debt review flag, which does not allow new credit opportunities. **While under debt review, you cannot take on new loans or credit cards.
Remember: the aim of the process is not to get you deeper into the debt pit but to help ‘rehabilitate’ your credit situation and behaviour/habits.
- Short-Term Dip: Your credit score may drop initially due to the debt review flag.
However, once your debts are settled and your status is cleared, your credit profile can recover and often looks better than if you had continued defaulting on payments.
- Commitment required: Missing any payments can cause the process to fail, and creditors may take legal action.
Important: Debt review is a sustainable solution, not debt cancellation. Commit to the repayment plan set by law, because the borrowed money still belongs to the lender.
When Debt Review Makes Sense
Debt review may be the right option if:
- You are declared over-indebted and can no longer meet your monthly obligations.
- You are facing legal threats from creditors.
- You need structured support to manage your debt over time.
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Frequently Asked Questions
How long does debt review last?
It depends on your debt amount and repayment plan. For some, it may be a few years; for others, it can take longer. The goal is always affordability and sustainability.
Will my credit score improve under debt review?
Not immediately. Your credit score may drop at first due to the debt review flag, but by preventing defaults and late payments, you’ll protect your profile in the long term. Once you exit debt review, you can start to slowly but surely rebuild your score.
Is debt review the same as debt counselling or instalment consolidation?
Yes. These terms are used interchangeably in South Africa.
Is debt review a good idea for everyone?
No. If you can still afford to repay your debts without help, or if your debt is small, then debt review might not be necessary. It’s best for people who are over-indebted and at risk of / already in default.
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To Conclude, when is Debt Review a Good Solution?
If you’re struggling financially and beind on payments, the question “is debt review a good idea?” is worth asking. While it does impact your ability to access credit in the short term, it protects you from legal action, reduces financial pressure (immediate cashflow relief), and gives you the opportunity to rebuild a healthier credit profile.
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