Debt is a dirty four-letter word which no amount of washing out will erase. Unfortunately, it’s an increasingly common word as many people succumb to debt. In broad terms, debt occurs on two levels:
1) Ordinary debt: the kind that doesn’t cause sleepless nights and cold sweats. Ordinary debt is when repaying your loans (credit card, mortgage and car loan, etc.) doesn’t put any undue strain on your income. In other words, it’s manageable.
2) Over-indebtedness: the kind that makes you contemplate rooftops and bridges. This is when your income is not sufficient to cover your debts and keep you clothed and fed with a roof over your head. In other words, it’s definitely not manageable.
According to the UK’s National Audit Office, there are four levels of over-indebtedness:
1) Worried well: those who only occasionally have trouble keeping up with their payments. But they need to be careful or they could easily slip into the next level.
2) Worried and at risk: those who sort-of kind-of manage to keep their heads above water. They the ones who are habitual late payers.
3) Over-indebted: those who have fallen behind with a couple of debts but who haven’t yet reached crisis point.
4) Highly over-indebted: those who are so far behind that they can’t see a way out. They’re paying off the interest rate on their overdrafts with the overdraft from other credit cards. And they don’t even open envelops with little windows in them because they know they can’t do anything about them.
What can you do if you can’t see the light at the end of the tunnel?
As much as you may want to, you can’t run and hide. You’re going to have to bite the bullet and ask for help. And you should do it before your creditors sic their lawyers on you.
Even if you’re slow on the uptake and the lawyers’ letters have started to arrive, you can still get help in the form of debt relief.
The criteria for debt relief are very specific: you have to be over-indebted and you have to be permanently employed. The whole process falls under the jurisdiction of the National Credit Act (NCA). It starts when you approach a registered debt counsellor who will analyse your financial situation to determine whether you are truly over-indebted or just a little bit stuck.
If you’re a little bit stuck, the counsellor will try help you find ways to save money, cut back expenses and manage your debt.
If you’re over-indebted, the counsellor will approach your creditors on your behalf and try to rearrange the terms of your debt so that you can make smaller, more affordable monthly payments.
Many people are put off applying for debt relief for two reasons: it’s embarrassing and it costs money.
There are fees associated with debt relief. There is an application fee (which is nominal) and there are debt review and aftercare fees, which debtreview.co.za says will be deducted from your monthly repayments, so you won’t feel the extra pinch.
Debtreview.co.za has a final word of warning for anyone who thinks they might qualify for debt relief: if you are so far in over your head that you can’t afford to pay the interest on your debt then you might do better to speak to a lawyer who specialises in credit law and look into administration or sequestration.
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Written by Sandy Cosser on behalf of Direct Axis, a South African personal financial services provider which offers debt consolidation and vehicle finance in its array of services.