If you find yourself feeling overwhelmed by debt and you are wondering if you will be able to stay afloat while trying to minimize your debt, you may need to look for a debt solution which is right for you.
There are 4 main solutions to consider if you are beyond the point of keeping up with your monthly repayments. This might mean that you are over-indebted, and you may be faced with legal action if you continue falling behind on your payments.
Also known as debt review, debt counselling happens when a qualified debt counsellor declares you over-indebted and helps you find ways to manage your debt. This is often done by negotiating with your creditors on your behalf to reduce your monthly instalments and interest rates.
The result is that your repayment plan will be extended but your installments will be more affordable. In other words, you will be paying less each month for a longer period of time.
With this method, you are able to continue covering your other monthly expenses, your assets will be protected as long as you stick to paying the newly agreed amount on time every month. If you miss just one payment, your amended agreement with the creditor will fall away, and you will be back to facing potential legal action.
However, should you stick to your payment plan, once you have settled all your debt, you will be provided with a clean credit slate and all record of your debt review will be cleared from your name.
Debt consolidation in South Africa is a bit more complicated than debt counselling in that it requires you to take out one large loan so that you can pay off all your other debt. As a result, you settle your debt with various creditors at once and then you are left with only one monthly payment.
This often makes it much easier to manage your debt because you only have to pay off one loan. However, it’s only a viable option if the debt consolidation loan’s interest rate is lower than the other creditors you are trying to pay.
It’s important to remember, that even though you may have a bit more breathing room after taking out a debt consolidation loan, it does not mean that you can continue racking up new debt. Take this opportunity to develop new, healthy money habits by saving rather than spending whatever spare change you might have.
Debt administration requires the court to appoint a debt administrator to you. If you find yourself in this position, you will need to hand over all control of your finances to the appointed debt administrator.
The administrator will then negotiate with your credit providers for reduced monthly instalments and interest rates. They set aside a portion of your income so that your basic living expenses are covered each month. The remaining amount will be used to pay off your outstanding debts.
While under debt administration, you will not be able to take out any new credit. However, you will be protected from creditors taking legal action against you. Furthermore, this debt solution is only available to individuals with unsecured debt less than R50 000.00.
Debt sequestration is something every individual should try and avoid, although if your debt problem runs away with you, you might not have a choice but to accept debt sequestration as your only solution.
Simply put, sequestration is serious enough to put you at risk of declaring bankrupt. Should this be the case, the court will appoint someone to manage your money on your behalf, with the aim of paying your debts. Additionally, your assets may be sold to pay off your outstanding credit and you will not be allowed to take out any new credit for a period of up to 5 years.
If you find yourself staring down the barrel of debt sequestration, it is strongly advisable to seek legal advice and assistance from a qualified financial advisor.
Although there are solutions to unmanaged debt, the better option is always to steer clear of bad debt as far as possible. Often this requires a solid, personalized financial plan which includes debt management, budgeting, investing, and saving to name a few.
Our financial advisors in Johannesburg work with clients all over the country to help them achieve their financial dreams and aspirations. Doing so becomes a lot more challenging when you are drowning in debt.
Contact our financial advisors to find out how we can help you get out of and stay away from bad debt so that you can save for your future and achieve your dreams.
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