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Debt: weigh up your options

Jan 14 2013 09:02 Fin24
debt

SA consumers are drowning in debt.

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A Fin24 user who is under debt management is still not coping. He writes:

I have a serious problem. I am under debt management but still cannot keep up with the payments.

What is my next option? Insolvency?

Friedl Kreuser of Summit Financial Partners responds:

If you are struggling to keep up your payments under debt management, you should speak to your debt counsellor as soon as possible about adjusting your budget and your payment plan to an amount you can afford more comfortably.

As long as you are still able to pay a reasonable amount to your credit providers, they should be able to reduce your monthly payments slightly if you are not coping.

You mention insolvency, which means you are considering voluntary sequestration. This is only really an option if you have enough assets that can be sold to pay at least 40% of your total debt (plus the high legal fees that go with it).

Typically, sequestration works well for businesses or for consumers with valuable assets like houses.

For consumers without valuable assets, debt counselling is still the best option currently available in South Africa.

I would suggest discussing your concerns with your debt counsellor. If they are unable to assist you, you can then contact the National Credit Regulator on 0860 NCR NCR (627 627) or the National Debt Mediation Association (NDMA) on 0861 11 NDMA (6362) for assistance.

The various debt relief options currently available in South Arica are:

Administration

An outdated form of debt counselling available only  for consumers whose total unsecured debt adds up to R50 000 or less.

This process is not adequately regulated by the law or any governing body and has therefore resulted in far too much misconduct, inefficiency and even theft.

A consumer is placed under administration by applying to a court, and can only be removed from administration by applying to the same court.

Sequestration

A legal process that requires the consumer to surrender their estate to a curator who will sell all their assets and use the proceeds to pay off their debt. The consumer must be able to pay off at least 40% of their total debt, as well as the full legal costs for a high court application to be declared insolvent and placed under sequestration.

The benefit is that once 40% (or more) of the debt has been paid, the balance of all the consumer's debt is written off and the consumer starts over with a clean slate - but with a curator managing all their affairs until they are declared "rehabilitated" by the court.

Debt counselling

A debt counsellor does a budget to calculate how much an over-indebted consumer can afford to pay their credit providers, and creates a payment plan for their credit providers in accordance with this.

Debt payments are reduced by asking credit providers to extend payment terms and reduce interest rates.

Unlike administration, the debt counselling process is set out in the National Credit Act and regulated by the National Credit Regulator and the National Consumer Tribunal.

Debt consolidation

Many consumers see this as a debt relief solution. However, it isn't really one as consumers are not paying off any debt, just replacing their current debt with other debt. There can be benefits if the fees, interest charged and repayment term are low, but often consumers end up paying more than they think they will.

Voluntary arrangements

If a consumer's debt is not too severe, they can try to make voluntary repayment arrangements directly with their credit providers.

The two most important things to remember is that a consumer should only agree to arrangements that they will realistically be able to stick to, and should always ask their credit providers to confirm any arrangements in writing.

- Fin24

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

* Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.




 

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