Once you realize that you are struggling to pay of your debt obligations via your monthly net income, you have a few options available to you that you can take. We will rate the options according to sustainability and cost of each
1. Borrow more credit
Once you realize you are unable to pay off all your debts, it may be the simplest option to delve into more credit by using your credit card or overdraft facility. Others use payday loans to survive from month-to-month and some borrow huge sums of unsecured monies under the guise of a “consolidation” loan.
Sustainability: Not sustainable at all. Unless you a waiting a huge paycheck change or bonus to get you out of the debt, you are going to be in that whole permanently.
2. Consolidation loan
Borrowing a large sum of money over a longer term with a smaller interest rate(well, in the short term) to pay off all the smaller debts seems to be the most popular option in personal debt management.
Consolidation loans are very expensive in the long term with capital plus interest paybacks that resemble vehicle financing. But it is very difficult to qualify for such a loan and often to qualify you must not need it.
Sustainability: Very sustainable if you can qualify. Word of caution: Do not be tempted to take out more money than you need here. It defeats the purpose.
3. Refinance with bond
If you are someone who has had a bond for a significant amount of time and have not seen a decline in your credit rating, then you may qualify for refinancing on your bond. This is simply being given more money as a loan through your bond (lowest interest rates of any credit product)
Sustainability: Very sustainable. Although credit providers are turning away a lot of consumers looking to refinance, if you qualify there is no reason you shouldn’t. Word of caution again, refinance for an amount you need.
4. Debt Review:
Applying for debt review and ensure you secure you assets from any legal action and prevent credit providers from instated any judgment or adverse listing on your name. Although there is a stigma attached to debt review and debt counselors acting unlawfully, it has proven to be a useful avenue to get your debt repayments lowered and cleared over a medium to long term.
Sustainability: Moderately sustainable. Given an affordable budget for household expenditure and devotion to monthly repayments, debt review works. One head’s up: Whilst under debt review a consumer may not acquire any other credit.
5. Sequestration and Administration
These are grouped together because they are both administered by admitted advocates, are regulated by ancient laws (the Insolvency Act and Magistrate’s court Act) and have huge implications for a consumer’s personal credit record. Only unsecured debt with a value of less than R50 000 is covered by debt administration and sequestration can take up to 10 years for a consumer to be considered rehabilitated. Although before can lead to a really affordable installment or once of payment to all your creditors
Sustainability: Somewhat sustainable but because of the detrimental effects these have on your life, they should not be used as debt management remedies. Also these are very expensive in terms of lawyer fees.
We hope this helps. For more information, contact debt-consolidation.co.za and leave your details for our consultants to contact you.