Being unemployed while having debt can be an incredibly stressful situation. With no steady income, keeping up with debt payments can quickly become impossible. For many South Africans facing this dilemma, debt review may seem like the best or only option. However, you may be wondering if debt review is even possible if you are unemployed.
What is debt review?
Debt review, also known as debt counseling, is a debt relief process available in South Africa through the National Credit Act (NCA). It allows over-indebted consumers who are struggling to pay their debts to apply for formal debt restructuring and relief through a debt counselor.
The debt counselor will work with the consumer to consolidate their credit agreements, negotiate lower monthly payments, restructure the terms, and ensure affordable repayment plans. This legal process stops any legal action from creditors and protects the consumer while under debt review. Overall, it gives the consumer a chance to get out of debt in a structured and managed way.
Requirements for debt review
There are a few requirements in order to apply for debt review:
- You must have one or more credit agreements (such as loans, credit cards, store cards etc)
- Your total debts must exceed your total net income
- You must have evidence that you are over-indebted and unable to meet your debt obligations
Importantly, being employed is not an official requirement for debt review. The NCA does not specify employment status as mandatory criteria. As long as you meet the above requirements and can demonstrate over-indebtedness, you can apply for debt review even if unemployed.
The debt review process
Here is an overview of the debt review process:
- Consult with a registered debt counselor
- Complete debt review application forms
- Provide income evidence (if any) and expenses
- Counselor reviews application and makes proposal
- If accepted, creditors are notified and legal action halted
- Counselor negotiates reduced payments with creditors
- Make one monthly payment to counselor for distribution
- Work to pay off debts under new terms over several years
- Receive clearance certificate when debt-free
This process allows for debt restructuring and affordable payments to become debt-free, even if the consumer has no income during the review period.
Proving over-indebtedness while unemployed
The key eligibility factor for debt review is being over-indebted – i.e. unable to meet current debt obligations. For unemployed applicants, providing evidence of over-indebtedness is critical.
Here are some tips for proving over-indebtedness when unemployed:
- Show income (UIF payments, social grants, odd jobs etc) versus expenses
- Provide proof of unemployment status (UIF card, retrenchment letter etc)
- Show debts exceed income, even if income is zero
- Explain inability to find work and why debts cannot be paid
- Show rejecting letters from creditors when explaining situation
- Provide bank statements to show lack of funds
The debt counselor can make a strong case for over-indebtedness on the consumer’s behalf with sufficient evidence.
Getting sources of income while under debt review
A common concern is how to get income while under debt review if unemployed. Here are some options:
- Seek employment – Any income earned must go towards debt review payments
- Odd jobs – Things like gardening, cleaning, driving for Uber etc
- Government grants – Social relief, disability, care dependency etc
- UIF payments – If retrenched or employment ended recently
- Family contributions – Support from spouse, parents or other family
- Sell assets – Non-essential vehicles, equipment, furniture etc
Having some form of income, even if minimal, will demonstrate good faith. The debt counselor can then better negotiate lower monthly payments with creditors. Any income received must be fully disclosed and go towards debt obligations.
How debt review affects credit score
Being under debt review will negatively impact your credit score in the short term. However, it is better than alternatives like administration that wipe your score completely. Here’s how debt review affects credit scores:
- Score drops initially when applied for debt review
- Listed as “under debt review” at credit bureaus
- Score remains low while under debt review
- Creditors unlikely to extend more credit
- Exiting debt review won’t instantly restore score
- Score slowly rebuilds as debts are paid off
So while debt review impacts credit scores negatively at first, they will gradually improve over time as the process leads to becoming debt-free.
Alternatives to debt review when unemployed
If debt review is not an option, here are some alternative debt relief options to consider when unemployed:
- Debt counseling – Get free advice on managing debts from a nonprofit debt counselor
- Informal debt mediation – Negotiate directly with creditors for reduced payments or different terms
- Debt consolidation loan – Combine multiple debts into one lower monthly payment (if qualify)
- Administration order – Legal process to have debts repaid from future income under court supervision
- Sell assets – Sell car, furniture, equipment, etc. to pay off debts
- Borrow from family/friends – Ask loved ones for a low-interest informal loan to repay debts
These alternatives can provide temporary relief. But debt review offers long-term debt restructuring not available with these options.
Getting through debt review while unemployed
Here are some tips to get through debt review successfully while unemployed:
- Cut non-essential expenses to the bone
- Stick to the revised debt repayment plan
- Explore every option to earn income
- Don’t take on new credit or debt
- Be completely transparent with debt counselor
- Get family support if possible
- Be patient – it takes several years
The key is to demonstrate you are doing everything possible to become debt-free, even without an income. This good faith can lead to better proposals from the debt counselor.
Debt review FAQs for the unemployed
Here are answers to some frequently asked questions about debt review when unemployed:
How do I pay each month when unemployed?
The debt counselor will negotiate revised monthly payments you can afford based on any income you receive. This may be very low if you have no job. Family can also contribute to the monthly payment.
What if I find a job after starting debt review?
Inform the debt counselor immediately if you become employed. Your repayment proposal will be revised upwards based on your new income.
Can I get new loans while under debt review?
No, you may not take on additional credit while under debt review. All new income must go towards existing debt obligations.
How long does the debt review process take?
Debt review typically takes 5 to 7 years to complete for most consumers. The full process ends when all debts are repaid and you receive a clearance certificate.
Will debt review help me if I’m unemployed?
Yes, debt review can help restructure unaffordable debts even with no income. The key is proving over-indebtedness.
Conclusion
While being unemployed makes debt review more challenging, it is certainly possible. The key requirements are having debt obligations you demonstrably cannot meet, and fully disclosing your financial situation. With help from a reputable debt counselor, appropriate relief and debt restructuring can be achieved through the debt review process.
Unemployed consumers should not hesitate to seek debt review as a viable option. And they should use any means possible to generate income that can be put towards monthly payments under the debt review plan.
While it will take time and discipline, debt review provides a structured process to legally repay debts and ultimately achieve financial freedom – even without steady employment.