Let’s face it – times are tough! Rising inflation and interest rates mean your money has to stretch further than ever and those monthly bills still have to be paid. Are you one of many South Africans who have found themselves up to their eyeballs in debt, constantly harassed by creditors and desperately needing to find a way out?
WHAT ARE YOUR OPTIONS?
1 – Debt Consolidation Loans
You could consider applying for a debt consolidation loan if you have a consistent income and real personal determination. This money could be used to pay off all your smaller debts at once and then you are just left with paying off the consolidation loan. Be warned though that many people simply fall into the trap of getting into further debt once again. Also a debt consolidation loan often has a high interest rate to pay back.
2 – Debt Review
If your debt is substantial you could enter into voluntary debt review through the help of a qualified debt counsellor. Your outstanding debt is assessed and a structured repayment plan is formulated. The debt counsellor renegotiates interest rates with credit providers or extends the debt repayment terms. A new affordable monthly budget and payment plan is drawn up and you only pay one amount to the debt counsellor every month which is distributed to all creditors. When under debt review, you are legally protected by the National Credit Act (NCA) and creditors cannot hassle you.
The disadvantages of debt review are:
This process could take a long time and you be paying off debt for years.
While under debt review, you cannot enter into any credit.
If you miss one monthly payment your creditors can take immediate legal action against you.
Once you have paid off your debts in full, you receive a debt clearance certificate and you are then free to enter into credit agreements, hopefully a little wiser this time!
3 – Administration
If your debt is under R50 000 you can choose to go under administration. This is a legal process in which the repayment terms are extended and you only pay out every three months. The process is lengthy and takes much longer than debt counselling.
Disadvantages of debt administration are:
Interest rates can only be reduced to the legal mora rate (currently 10.25%).
The repayments terms are extended indefinitely.
Payments are only distributed to creditors every 3 months so interest adds up.
You are not allowed to incur any further credit until your outstanding debt is paid.
4 – Insolvency and Sequestration
If your debt is extreme and you are completely unable to pay back your creditors or your liabilities exceed your assets, you can be considered insolvent. A sequestration order is a formal declaration that a debtor is insolvent. Sequestration can be done voluntarily or when a creditor applies to have the person’s estate sequestrated.
This surrender of your estate should only be considered in instances when no other debt remedy was successful.You must have enough assets to pay the creditors who need to receive a minimum of at least 10 cents per rand that you owe, once your assets are distributed among them.As with all debt remedies, sequestration has both its advantages and disadvantages. The advantages include being able to get rid of a substantial portion of the debt fairly quickly and the protection of your future income from garnishing orders from creditors.The disadvantages of sequestration are:
You may lose your assets which may be sold to pay outstanding debt.
Your credit rating will be blackened for up to 10 years.
Some types of debt, like home and car loans remain. This process will only eliminate your personal liability for secured debt and doesn’t erase the creditor’s security interest in the asset.
You cannot be a director of a company until the courts declare that you’ve been rehabilitated.
Whatever your financial predicament, Marshall Attorneys has the expertise to assist you. Speak to us today