Quick answer
No, you cannot apply for new credit or use your credit cards while under debt review in South Africa, because section 88 of the National Credit Act prohibits it. According to DebtBusters, the restriction lasts until you receive your clearance certificate.
A credit provider that lends to you during debt review risks having the agreement declared reckless credit. Any new debt you take on cannot be added to your debt review plan.
Debt review, also known as debt counselling, is a formal legal process regulated by the National Credit Act (NCA) in South Africa. It's a supportive process that helps overindebted consumers repay what they owe at a pace they can afford.
Here we explain how the process works, whether you can apply for or use credit while you're in it, and what to do if you need money urgently.
The short answer: no new credit while you're under debt review
No. While you're under debt review, or debt counselling, you cannot apply for more credit or use your credit cards.
When you apply for debt review, your debt counsellor notifies your credit providers and the credit bureaus, and a debt review “flag” is placed on your credit report. From then on, you cannot apply for new credit or use any further credit on your existing facilities.
This is a condition of section 88 of the National Credit Act, and it's there for your own protection. It covers every kind of credit, including:
Credit cards and store cards
Personal loans, payday loans and short-term cash loans
Overdrafts and revolving credit facilities
Vehicle finance and other instalment agreements
Debt counselling is a debt rehabilitation process, designed to make your debt more manageable. By restricting access to new credit, it helps you focus on paying off existing debt and avoid building up more, so you can escape the debt trap.
It's essential that you stick to the terms of your debt counselling agreement so that the process succeeds and you avoid legal consequences.
Before you start, make sure you understand how it works. Start with what debt review is, then read our in-depth debt counselling guide. For the legal background, see our guide to the National Credit Act.
What happens if I use my credit card while under debt review?
You can't use your credit card once you're under debt counselling. Your credit providers are notified when you apply, and revolving facilities such as credit cards, store cards and overdrafts are usually suspended. Any attempt to use them would break the terms of your debt counselling agreement.
If you don't stick to your debt counselling agreement, your credit providers may be able to end your debt review or enforce the original credit agreement through the courts. This means you would no longer be legally protected, which could lead to a court judgment against you. A judgment is recorded on your credit profile and lowers your credit score.
Missing an instalment has similar risks. Read what happens if you miss your monthly repayments under debt counselling.
What happens if I apply for more credit while under debt counselling?
Applying for more credit while you're under debt counselling is prohibited by section 88 of the National Credit Act.
Credit providers must check your credit record before approving a credit application. The debt review flag on your credit report shows them that you're under debt counselling, and they should decline your application. A credit provider that grants you new credit while you're under debt review risks having all or part of that agreement declared reckless lending by a court.
There's a second consequence, and it falls on you. If you take on credit in breach of section 88, that agreement can never be brought under the protection of debt review. You would have to repay it on its original terms, on top of your monthly debt review instalment.
If you feel you need extra credit because money is tight, ask your debt counsellor to help you adjust your budget first. Look for ways to reduce expenses or earn extra income to cover short-term needs.
Under debt review and need a loan urgently?
You'll see lenders advertising “loans for debt review clients” or “loans for people under debt review”, many of them online. Be very careful. Taking one of these loans breaks section 88 of the National Credit Act, and the loan would sit outside your debt review, at its full interest rate and fees, with no way to restructure it later.
Never pay an upfront fee to get a loan approved or paid out. This is a common scam, and people under financial pressure are frequent targets.
Instead, try these steps:
Speak to your debt counsellor first. If your income or expenses have changed, they can review your budget with you and explain what options are available.
Rework your budget. Our guide to building a budget shows you how to find room in your monthly spending.
Look for extra income. Selling items you no longer need or taking on short-term work can cover a one-off expense without new debt.
If you've lost your job, read what to do if you are retrenched and tell your debt counsellor straight away.
When can I take out more credit?
Technically, you can apply for credit once your clearance certificate has been issued and the credit bureaus have removed the debt review flag from your profile. Bureaus can take a few weeks to a couple of months to update your records. Even then, it's a good idea to wait several months and keep an eye on your credit report.
This gives you time to settle into sound financial habits and rebuild your credit reputation. When you do apply, lenders may start you on lower limits until your credit score has had time to recover. Read more about what happens once debt review is over.
A clean credit record lets you access credit and other financial products again, but approach this cautiously, as it's easy to fall back into the debt trap.
Taking out an unsecured loan may not be advisable. Unsecured loans, which aren't backed by assets, usually have higher interest rates. These can be harder to manage and increase the risk of default.
How does a clearance certificate work?
A clearance certificate is a legal document issued to you at the end of your debt counselling journey, once your restructured debt has been settled.
Under section 71 of the National Credit Act, your debt counsellor must issue it within seven days once you've paid all the debts included in your debt review. Your home loan, or another long-term agreement, doesn't have to be paid off first, as long as those repayments are up to date and you can afford them going forward.
The faster you complete your repayments, the sooner you can get your clearance certificate. As part of the process, your debt counsellor confirms with your creditors that each debt has been settled in full.
Your debt counsellor then sends the certificate to the National Credit Regulator and the credit bureaus. The bureaus must remove the debt review flag from your credit report, along with the record of any defaults linked to the debts in your debt review. If you've kept up your repayments, your credit score should improve during the process, and you can keep rebuilding your credit score once you have your certificate.
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What if I want to end debt review early?
When you can leave depends on how far your debt review has gone.
Before a court order. You can cancel your debt review before a court has made your debt restructuring an order. You may still owe fees for work your debt counsellor has already done.
After a court order. You can exit once you've paid all your restructured debts and received your clearance certificate. An up-to-date home loan can be excluded. Otherwise, you would need to apply to court, which only succeeds in exceptional circumstances and usually means legal costs.
Think carefully before you try to exit early, as the consequences can be severe. Your credit providers can take legal action to enforce your original agreements, your repayments go back to their original amounts and interest rates, and withdrawing doesn't remove the record of your debt review from your credit profile.
If you really have no other option, your debt counsellor can explain your choices. Read more about withdrawing from debt counselling.
Why should I stick with the debt review process?
Sticking with the debt counselling process has several advantages:
Reduced interest rates. Your debt counsellor negotiates lower interest rates with your creditors, which helps to reduce your overall debt burden.
Consolidated payments. You make a single, affordable monthly payment to a payment distribution agency, which distributes the funds to your creditors. This simplifies your finances.
Legal protection. Being under debt counselling can protect you from your creditors (except where court orders already apply), which prevents them from taking legal action against you.
Financial guidance. Your debt counsellor can guide you on freeing up funds to repay your debts comfortably, while leaving enough to cover your monthly bills.
Improved credit score. Your credit score will improve over time if you exercise financial discipline and successfully complete the debt counselling process.
Sticking with debt counselling will help you achieve financial stability and improve your financial wellbeing in the long term.
Moving forward after debt review
It is possible to move forward after debt counselling, provided you continue to exercise financial discipline. This may involve careful planning and possibly working with a financial coach or planner.
Here are some guidelines to help you stay on course:
Set financial goals and create a realistic budget. This will help you manage your income and expenses. Monitor your spending to identify where you can cut costs.
Build up an emergency fund. It's wise to have at least three months' salary saved so you're covered if unexpected expenses come up. If you can't manage three months' salary, save as much as you can. Here's how much you should save.
Focus on rebuilding your credit score. Make your repayments on time, don't rely too heavily on credit and check your credit report regularly.
Getting back on track financially
Getting your finances back on track is possible, even if it seems challenging. Here are some tips:
Pay your bills on time to avoid late fees and penalties.
Avoid unnecessary spending. Focus on what you need rather than what you want.
Budget for treats so you won't be tempted to make impulse purchases.
Avoid taking on credit, or limit its use. If you do take out a loan or use a credit card, make sure you can pay the balance in full every month, and choose credit products with low interest rates where possible. Here's how to use your credit card wisely.
If you find yourself getting back into financial difficulty, act early to limit the damage before you spiral into debt.
If you're overindebted, the best thing to do is get guidance early. Contact DebtBusters about debt counselling to find out whether you may benefit from it.
Frequently asked questions
Can a person under debt review get a loan?
No. Section 88 of the National Credit Act prohibits you from taking out any new credit, including personal loans and payday loans, while you're under debt review. A loan taken in breach of this rule can't be added to your debt review, so you would have to repay it in full on its original terms.
Can I buy a car while under debt review?
You can't take out vehicle finance while you're under debt review, because it's a new credit agreement. You can buy a car with cash you already have, as long as it doesn't affect your ability to pay your monthly debt review instalment.
Can I get a store card while under debt review?
No. A store card is a form of credit, so you can't apply for one or use an existing one while you're under debt review. Retailers check your credit report and will see the debt review flag.
Can I still use my bank account and debit card under debt review?
Yes. A debit card spends money that's already in your own account, so it isn't credit. You can keep using your bank account and debit card, but any overdraft on that account is a credit facility and falls under the debt review restriction.
How long after debt review can I apply for credit?
You can apply once your clearance certificate has been issued and the credit bureaus have removed the debt review flag, which can take a few weeks to a couple of months. It's wise to wait several months after that and rebuild your credit score before applying.
What happens if a lender gives me credit while I'm under debt review?
The credit provider risks having all or part of the agreement declared reckless credit by a court. For you, the new agreement falls outside the protection of debt review, so it can't be restructured and must be repaid on its original terms alongside your debt review instalment.
