Debt Counselling and the Debt Trap
Wednesday, July 29th, 2009 Subscribe To Our Feed
In boom times it is easy to find new loans and easy to service them because your house keeps going up in value and you could do a consolidation loan on your mortgage in no time to help you with your repayments.
Your living standards increased, because you where buying more luxury items like bigger car and house. But now the boom, that everyone thought will last for ever, has turned to bust. Interest rates went up and house prices went down. New loans to sponsor your life style become harder to find, because the banks have tightened lending criteria.
People start to have cash flow problems. New loans will be taken out to cover the cash flow short fall. At some point you will not be able to take out new loans, because of affordability according to the banks new requirements. There are ways to close the gap between income and expense. One of the ways to cut living cost is to changed your spending pattern. The problem is that if you have improved your living standards to a bigger house and car, you might find that these large ticket items are difficult to sell in a recession or declining market. In the current market there are no buyers for items that need finance, because the banks are not lending. You are stuck with your expensive assets and with the high monthly payments.
It is not the solution to your debt problem to go and find a new loan to cover your shortfall on current loan payments. The loan will cover a couple of payments, but at the end of the day you will sit with higher loan payments and more debt to pay back to creditors.
There is a new alternative to debt consolidation thanks to the new National Credit Act, namely debt counselling. People should not apply for a new loan to cover the short fall. They should take responsibility for their debt and apply for debt counselling in South Africa. Debt counselling South Africa will allow you to negotiate lower payments on your monthly payments to creditors with the help of debt counsellors that are appointed by the national Credit Regulator.
You will be protected from your creditors taking legal action while in debt counselling. You will not be allowed to spend money on non essential items and you will have to live according to a strict budget. The payments that you make to your creditors each month will be negotiated by your debt counsellor to an amount that you can afford to pay. You will make payments to the Payment Distribution Agency and the PDA will pay all your creditors every month. You will not be allowed to take on new credit like use your current credit cards and store cards to buy goods.
Your debt counselling will end when you have repaid all your debt or your personal situation changes so that you are able to make full payments to all your creditors.
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