Debt instalment reductions might sound like a quick fix to overwhelming debt, but they often come with serious risks. If you’ve received an unsolicited call or message offering to lower your debt repayments, it’s crucial to approach it with caution. While legitimate options exist, many of these offers are designed to take advantage of vulnerable individuals. Here’s what you need to know to protect yourself.
What Is a Debt Instalment Reduction Offer?
A debt instalment reduction offer typically promises to reduce the monthly payments you make towards your debt. These services often claim to negotiate with creditors on your behalf to make your debt more manageable. However, it’s essential to understand that not all offers are as straightforward as they seem.
ALSO READ: South Africans Facing Less Financial Stress, But Debt Remains a Struggle
What is Debt Review, and How Does It Work?
Debt review is a legal process designed to help people who are over-indebted. It involves restructuring your debt to lower monthly payments, but it also has long-term consequences. For example, it will affect your credit rating, and you’ll be unable to access new credit until your debts are cleared.
MJ Davis, CEO of Retail Loans at FNB, shared this insight:
“Debt review is designed for those who are genuinely over-indebted. However, some debt counsellors don’t fully explain the long-term implications, leading people into a worse situation.”
If you’re not fully informed, an offer to reduce your debt could end up placing you under debt review, which may limit your financial flexibility for years.
How to Identify a Scam Debt Instalment Reduction Offer
With the increase in scams targeting debt-stricken individuals, it’s vital to know how to spot a fraudulent offer. Here are some warning signs to look out for:
1. Unsolicited Offers
If you receive a phone call, email, or text offering to reduce your debt instalments without you reaching out first, it’s a major red flag. Legitimate debt counsellors won’t cold-call you with such offers. If it sounds too good to be true, it likely is.
2. Vague or Unclear Terms
Fraudulent debt reduction services often provide vague details about how they plan to reduce your payments. If they can’t explain exactly how they’re going to help, or if they seem evasive, it’s a sign to be cautious. Always ask for clear, written terms and conditions before moving forward.
3. Requests for Upfront Payments
Be wary of companies that ask for payment upfront. Legitimate debt counselling services are usually free to begin with, and fees are only charged once services are rendered. Never pay for a service before you’ve received it.
The National Credit Regulator (NCR) advises:
“Consumers should only engage with debt counsellors who are registered with the NCR and are clear about the debt review process.”
4. Lack of Proper Credentials
In South Africa, debt counsellors must be registered with the NCR. Before agreeing to any debt service, make sure the counsellor is registered. You can verify their credentials on the official NCR website here.
How to Protect Yourself from Debt Instalment Reduction Scams
To avoid falling victim to these scams, follow these practical steps:
1. Verify the Debt Counsellor’s Credentials
Before committing to any debt service, always check that the debt counsellor is registered with the NCR. This ensures they are authorised to provide legitimate debt advice.
2. Read the Fine Print
Request and carefully read all written documentation related to the debt reduction offer. Don’t sign anything until you fully understand what it means for your finances.
3. Take Your Time
Scammers often use high-pressure tactics to push you into making decisions quickly. Take your time to consider all your options before agreeing to anything.
4. Explore Alternative Solutions
Debt consolidation or negotiating directly with creditors might be a better option for some people. These alternatives can offer more flexibility without the long-term consequences of debt review.
READ MORE: How to Avoid the Debt Trap as a Young Professional in South Africa
While a debt instalment reduction offer can seem like a lifesaver, it’s essential to proceed with caution. Many of these offers are scams designed to trap you into more debt. To protect yourself, always verify the credentials of the debt counsellor, read the fine print, and avoid offers that seem too good to be true.