If you find that you can't or won't be able to pay your personal loan (unsecured loan), the first thing you should do is approach your credit provider and let them know. They may suggest a few options available to you. Ideally, you want to speak to your credit provider BEFORE defaulting on a loan as this can damage your credit score.
Let's unpack why it is important to act before you miss a payment and what can happen if you miss a payment:
The debt collections process in South Africa explained
- Courtesy Call
While not a compulsory step in the collections process, it is common for creditors to reach out to you via a courtesy call if you have missed a payment.
A missed or late payment can stay on your credit report for up to 7 years! - Section 129 Notice
Following this, you can expect to receive a formal letter of demand known as a Section 129 Notice, outlining the missed payment and outstanding balance on your account.
Taking a Section 129 Notice seriously is crucial. This is the final warning before legal action may be taken against you. If you miss payments of your loan for 90 days, the creditor may transfer your debt to a third party known as a debt collector or collections agency. - Judgement
If you do not make payment arrangements within 10 days of receiving a Section 129 Notice, this could to a debt collector or creditor pursuing a court judgment. - Summons
If a judgment is issued, a Sheriff of the Court may summon you to appear in court, giving you the option to settle the outstanding fees or contest the judgment. - Warrant of execution
If you do not respond to the court summons, this may result in a warrant of execution being issued, which could lead to the enforcement of a garnishee order or asset repossession of your house and your car.
If you miss a payment or if your account has been handed over to a debt collector, this will be shown on your credit report and will likely result in a drop in your credit score. Your inability to repay your loan and maintain your part of the loan agreement will also very likely affect your ability to get credit in the future. This is why it's important to act before missing a payment.
Budget and track your expenses
If you're approaching your loan payment due date and feeling uneasy about meeting it, it's a good time to create a budget. This will give you a clear picture of where your money is going and help you identify areas where you can potentially cut back. It's easy to overlook how we're spending our funds, so tracking your income, expenses, and debt in a budget can bring everything into focus.
After creating your budget, explore ways to trim your expenses. Are there any subscriptions you can cancel or more affordable alternatives you can switch to? These are the important questions to consider when analyzing your budget and finding ways to save.
Download a FREE, customisable budget template here to help you fast-track this process.
Debt Consolidation Loan
You may want to consider applying for a debt consolidation loan as a potential solution if you're struggling to pay off your personal loan. A debt consolidation loan involves taking out a new loan to pay off all your existing debts, combining them into one single monthly payment. This can help simplify your finances and potentially lower your overall interest rates, making it easier for you to manage your debt.
Before applying for a debt consolidation loan, make sure to compare different lenders and loan offers to find the best option for your financial situation. Additionally, it's important to carefully review the terms and conditions of the loan to ensure that you understand the repayment terms and any associated fees.
Ultimately, a debt consolidation loan can be a useful tool in helping you regain control of your finances and make it easier for you to stay on top of your payments. However, it's important to remember that taking on additional debt should be done thoughtfully and with a clear plan for repayment in place.
Read our blog post about why you shouldn't take out a debt consolidation loan here.
Debt counselling
Debt counselling, also known as debt review, is another option to consider if you are struggling to pay off your personal loan. Debt Counsellors are professionals who can help you develop a plan to manage your debt more effectively. They can negotiate with your credit providers on your behalf to potentially lower your interest rates your loans. This can end up saving you money in the long run.
- By signing up for debt counselling, you will consolidate your debt WITHOUT having to take out another loan. Remember, having too much debt can negatively impact your credit score because creditors can see you as too reliant on debt.
- Debt counselling ensures that you pay one, reduced affordable monthly repayment. Unlike with a consolidation loan, debt counselling also ensures that a decent living budget is taken into account when your new repayment amount is calculated. This means that you will be able to manage your debt and live.
- Debt counselling will offer you immediate relief from your overwhelming monthly debt repayments and can reduce your monthly repayment by up to 50%!
- Because your new repayment plan is taken to court, none of your creditors will be able to repossess your assets like your home and your car. These are now legally protected when you are under debt counselling.
- Debt counselling is also a way to rehabilitate and eventually improve your credit score. With your new repayment plan, all your debt repayments will be made on time.
Who is Meerkat?
Meerkat is dedicated to empowering South African consumers to make the most of their finances. Recognized as one of the top 10 leading debt counsellors in the nation, we are committed to providing expert financial guidance and support. Trust in Meerkat, a registered Debt Counsellor with NCRDC 2613, to help you navigate your financial journey with confidence and clarity.