Someone offered to reduce your debt instalments? This is what to beware of

Consumers are warned about someone calling them offering to reduce their debt repayments every month, as they could inadvertently sign up for debt review, which is not necessarily what they want. It is even more tempting if your bills are piling up while your income stays the same.

“Let’s be honest. When money is tight and the bills keep piling up, it is easy to feel like you are drowning juggling groceries, school fees, transport and maybe even helping extended family. Then, out of nowhere, someone calls offering to save you money or reduce your interest rates.

“It sounds like a lifeline. But what if that lifeline quietly pulls you into something you never agreed to, like debt review?” MJ Davis, chief executive officer of Retail Loans at FNB, says.

That is exactly what happened in a recent case brought before the National Consumer Tribunal. A consumer was placed under debt review without being properly informed or giving written consent. As a result, he could not access credit and the debt counsellor was fined R250 000 for misconduct.

ALSO READ: Debt Review: The good, the bad and the ugly

Is debt review what you really need?

Here’s the problem, Davis says. “Debt review is meant for people who are truly over-indebted. It restructures debt and protects you from legal action, but it also flags your credit profile and blocks you from taking on new credit until you are cleared by a court of law.

“The issue is that some debt counsellors are not correctly informing prospective clients about what they will be getting into if they opt for debt review. They use smooth marketing (with cold calls their favoured channel), often along with vague promises to get people into debt review without explaining the consequences.”

He says this case is a stark reminder of how easily consumers can be misled into a process that fundamentally alters their financial freedom. Debt review is a serious legal commitment. When entered without full understanding or consent, it can have devastating consequences, especially for vulnerable consumers who are already under financial pressure.”

ALSO READ: Debt review: should you or shouldn’t you?

Desperation can lead to risky decisions. When you are stressed about money, it is tempting to grab the first solution that promises relief. But not all solutions are equal, Davis says. “Debt review might be the right choice for some, but for many, a less severe alternative is debt consolidation.

“Debt consolidation lets you combine multiple debts into one personal loan, giving you one monthly payment, lower interest rates, zero legal restrictions on future credit and (most importantly) no credit bureau flagging.”

Before you agree – how to check if it is debt review

Davis says before you agree to anything:

• Ask for everything in writing: If someone offers you a financial service, make sure you understand what it is. Ask for a written explanation and do not sign anything until you are clear.
• Watch out for vague promises: “Save money” and “reduce interest” sound great but ask “how?”. If it is debt review, they must tell you upfront.
• Check their credentials: Only work with debt counsellors registered with the National Credit Regulator (NCR). You can verify them at www.ncr.org.za.
• Know your rights: You must give explicit, written consent before being placed under debt review. If you think you have been misled, report it to [email protected].