South Africans have had to grapple with mounting debt which has been exacerbated by factors such as high interest rates, sky-high fuel prices and increases in the cost of living.
Rynhardt de Lange, Director and head of Legal at Milaw Legal, said that to navigate these tough times, people should explore various debt relief options that are available to them, including debt review and debt mediation.
But which of these approaches is better suited to your unique financial situation?
De Lange offers consumers a breakdown of both debt review and debt mediation to help them make an informed decision.
Debt review
Debt review, also known as debt counselling, is a structured debt management process regulated by the National Credit Act (NCA) in South Africa that is designed to help over-indebted consumers restructure their debt obligations in a way that will be easy for them to manage.
During the debt review process, a debt counsellor will assess the financial situation of the consumer, negotiate with creditors to lower monthly payments, and create a single, affordable repayment plan.
According to de Lange, debt review is appropriate for consumers who are overwhelmed by debt, especially those who find themselves facing possible legal action from creditors.
“Debt review provides legal protection against asset repossession and legal actions, thereby alleviating the bulk of the anxiety of debt stress for those in dire financial straits,” de Lange said.
Debt mediation
Debt mediation is a debt resolution process that involves creditors and debtors negotiating directly to reach repayment terms that both parties agree on.
Debt mediation, which is not governed by specific legislation, is a flexible approach that allows for personalised negotiations with creditors to decrease interest rates or extend repayment terms.
According to de Lange, debt mediation offers people more flexibility and has less formal restructuring than debt review.
“Debt mediation is ideal for individuals with less severe debt problems who can negotiate directly with creditors,” de Lange said.
De Lange shares five tips to help people make the choice between debt review and debt mediation.
Understand the difference
Debt review offers people legal protection as they restructure their debts and gradually pay them off, while debt mediation involves negotiating payment terms with creditors using a professional mediator.
You financial situation
Determining which debt relief option is right for you depends on your financial circumstances. This makes it vital that people take a good look at their financial situation before making a decision.
Consider your financial goals
Clarify your financial objectives, whether that is to prioritise getting rid of your debt or to establish a structured repayment strategy that is manageable.
Evaluate eligibility
De Lange said that debt review is for those struggling with monthly debt payments, while debt mediation suits those with a lump sum for creditor negotiations.
Consult with professionals
Consult qualified financial or legal professionals for guidance on the debt relief option that is most suited to your financial situation.
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