FREE YOURSELF FROM DEBT

HOW TO FREE YOURSELF FROM DEBT: WHICH SOLUTIONS ARE BEST FOR YOUR SITUATION?

Once you are in the credit crunch, it is easy to lose perspective. Stress hinders creative thinking. Indeed, it is exceptionally easy to fall deeper into the debt trap in an attempt to free yourself from debt. If you have already drastically cut back on spending, have taken steps to reduce insurance premiums, and have closed service contracts that are not essential, then you need to look for debt solutions that work.

As voluntary sequestration does mean losing assets in the process, it is usually the last resort. We will discuss when it is one of the best debt solutions, but let us first consider other solutions to free yourself from debt.

SOLUTIONS: DEBT CONSOLIDATION LOAN

If you are still creditworthy and can afford it, you can apply for a debt consolidation loan through a reputable lending institution, such as your bank. But what does it entail?

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The money you borrow must be sufficient to cover all the debts, not just some of it. It is one of the workable solutions if you have several store cards, credit cards, personal loans, and overdrafts. It is not one of the viable solutions if you have a home loan that still has a substantial amount payable. The debts for which you get a consolidation loan must be covered.

To determine if it is a viable way to free yourself from debt, make a list of the following:

  • Creditors
  • Principal amount for each
  • Outstanding amount
  • Interest payable every month
  • Monthly instalments
  • Service fees on every card
  • Insurance fees on every account
  • Settlement amount
  • Penalties payable for early settlement

Once you have the information, write down the total you pay for all the debts every month. Only if the consolidation loan means being able to get rid of all the debts or at least the qualifying ones, should it be considered as one of the viable solutions. Keep in mind that you may end up being in debt for a longer period than would have been the case had you kept with the monthly instalments. Also, only consider this solution if the interest payable on the loan is lower than the interests charged by the various creditors on your list.

Do not be fooled with just a percentage. You have to consider the month-on-month interest and how much it works out over a year. Now put it into monetary value and calculate the total payable over the entire repayment period. Compare it with paying off each account as normal with monthly instalments. Is the interest payable higher or lower? If you end up paying less, then having a single creditor rather than several can help to free yourself from debt.

Beware the trap of having more disposable income when you work with a consolidated monthly payment. You may end up getting more accounts and returning to the credit crunch. This can leave you in a worse position than before. Once you take a consolidation loan, have all the accounts closed to minimise the risk of using them again. This will also free up cash because you will no longer pay service and insurance fees on those accounts.

DEBT REVIEW

However, if you do not qualify for a consolidation loan or it works out to be a more expensive option, debt review is another one of the solutions to free yourself from financial troubles. Here too, you have to consider the benefits and the risks. The main advantage is a lower consolidated monthly payment rather than separate payments to the various creditors. This leaves you with more disposable income.

In addition, creditors can no longer take legal action against you. You are protected against creditor action once under debt review. This means no collection attempts. The creditors work with your councillor, who also negotiates lower interest rates.

A negative is that you cannot enter any credit agreements during the period. A notice is placed on your credit record. It can affect your ability to rent a place, as many realty agents do not want to rent places to families where one of the income earners is under debt review.

If you miss a payment or make a late payment, the debt review can be cancelled, and all the amounts become payable with immediate effect.

Once the amounts are paid in full, you receive a clearance certificate and thus have proof of being debt-free. In addition, you can then enter credit agreements without being overexposed to credit. Your credit record is updated, and accounts show that you have paid on-time monthly, helping you to rebuild your credit record. Most of the creditors allow you to re-open or use your accounts once you have a clearance certificate. However, this can cause a return to the credit crunch.

Also, keep in mind that service contracts and residual payment agreements, such as finance with balloon payments payable at the end of the time, cannot be included in the process. You must also have a monthly income, as you will be required to make a consolidated monthly payment.

ADMINISTRATION

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If the amounts you owe are not enough to qualify for debt review, then administration is a solution. However, you end up paying excessive amounts on legal costs. You can also stay under administration for a long time. Credit is not an option during the period, and although you may pay lower monthly instalments, it can take years to free yourself from debt. Indeed, you may end up staying in financial trouble far beyond what is reasonable.

VOLUNTARY SEQUESTRATION

Perhaps the fastest way to free yourself from financial trouble is to voluntarily surrender your estate. It is a legal process whereby our attorneys assess your financial state. If you qualify and decide to go the route, a notice of the intention to voluntary sequestrate is published in relevant newspapers and the Government Gazette. A notice to the effect is sent to SARS, the Master, and the creditors. From this moment, you are protected against legal action from creditors. You can opt for voluntary sequestration, even if you are under debt review or have a consolidation loan.

The option is available even if you are self-employed. To qualify, you must be cash-flow and capital insolvent. This means you must not be able to pay debts when due and your liabilities must exceed your assets.

If the application is approved, the appointed trustee/curator oversees the sale of assets on auction and the distribution of the minimum benefits to the creditors. With this method, you can get rid of up to 80% of the debt in a short period, as the creditors must receive at least 20 cents out of the rand. If you owe R100 000, then the creditors must receive at least R20 000.

Once sequestrated, you are debt-free and can rebuild your estate. Once the time period has lapsed, and the requirements are met, you can apply for rehabilitation. With rehabilitation, the effects of the sequestration end and you can enter credit agreements without the permission of the trustee.

If you want to free yourself from debt in the fastest-possible way, then voluntary sequestration is a viable solution. Get in touch with our attorneys to help you determine which solutions are best for your particular situation.


Disclaimer: Information in this article is not intended as legal advice and is only for informational purposes. Please seek legal guidance from our attorneys before relying on this information to make any legal decisions.