Debt Management – What are my options?
The more money you owe, the less likely you will be able to repay your debt. The only good debt is money that you borrow in order to make more money, like an investment. Make sure your finances are organised, know who you owe money, decide which debt to pay off and put together a monthly budget.
There are various options available when you find yourself feeling overwhelmed by debt. Make sure you choose the right one for you.
This is where you take out one larger loan to pay off all your smaller loans. You then make one repayment each month.
Debt consolidation will not immediately rid you of debt but may make it easier for you to manage your monthly repayments.
Debt consolidation services are offered by accredited institutions such as banks and financial service providers. Loans are regulated by the South African National Credit Regulator (NCR) under the National Credit Act (NCA).
If you are struggling with debt repayments and fall into arrears it is unlikely you will qualify for a debt consolidation loan. If you do qualify, the loan is usually offered at a high interest rate. You cannot be overindebted at the time of application.
Debt Administration is a legal process that reduces your monthly repayment and extends the term of your debt. Your total debt cannot exceed R50 000.
A debt Administrator will deduct your living expenses from your income and divide the balance equally among your creditors. Only a court can order that you be placed under Administration.
This process can be quite expensive. Fees are charged at 12,5% plus VAT and any distribution costs and interest rates are only reduced to 15,5%. The interest payable on your loans increases as creditors are only paid every three months.
Debt Administrators are not legally required to register with a regulatory body which results in irregularities in the industry.
Administration is recommended only as a last resort.
If you find yourself so over-indebted that you cannot offer a reasonable amount to pay your creditors each month, you may decide sequestration is the right solution for you. Sequestration is a high court application that must be handled by an attorney – this will mean expensive legal fees. You will need to sell your possession to settle or reduce your debt. This includes your home, your car and any other assets of value. This is a long process and you will not be able to take on debt for another five years.
Debt review (also known as debt counselling) is a legal process where your debt repayment and interest rates are reduced. This is provided you cannot pay your creditors on your current income. If you find that more than half of your salary is going towards debt repayments, you are likely to be over-indebted and will benefit from the debt review process.
You will need to partner with a debt counsellor who is registered with the National Credit Regulator (NCR). Your debt counsellor will review your budget considering your income and required living expenses. They will then restructure your debt to an amount that is more affordable to you and submit a revised payment plan to all your creditors on your behalf.
Once the revised proposals are approved your debt counselling will take your matter to court to have a court order granted. This ensures you and your assets are protected from creditors hassling you and initiating repossession.
The credit bureau will be flagged to show you are under debt review and you will not be able to take out further credit during this time. This is to ensure you do not get further into debt and cannot make the agreed repayments as per the court order.
Your creditors agree that the first 2 months repayments are provided to the debt counsellor for the restructuring of your plan as well as going to court on your behalf.
At the end of the process, you are issued with a clearance certificate which clears your credit record of any previous negative implications.
Meerkat is registered with the NCR (National Credit Regulator – NCRDC2613). We understand that life happens, and you can start to fall behind on your debt repayments. We can help you regain financial control and walk the journey with you to becoming debt-free. As a team, we’re looking out for you.
We also offer competitive credit life cover to protect you and your family if you die, are retrenched, become disabled or suffer a severe illness.
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