By Marli Naidoo
Debt can be advantageous when managed well, and doesn’t take over your life. Some people want to pull out their hair and take off to the hills when they hear the word “debt”. Unfortunately, this is the nature of credit: it is like a cosy fire that braais your meat and provides you with heat, but when you lose control of it, it can cause total destruction.
Credit and debt are the same thing, and can enrich or impoverish you. Good debt will leave you in a better position after having paid it off. A good example of positive debt is the payment of a house mortgage.
Debt, how much out of control it may be, need not take over your life. There are ways of paying off debt, and professional help is available.
First make a list of all your debts. For example, include the following information about your mortgage: minimum monthly instalment, interest rate and total balance owing.
List all your debts in the following sequence: from the smallest amount you owe to the biggest amount.
Look at your entire budget, and cut out all extras. This is the most difficult step. For a while you will have to eat out less, spoil yourself less, and possibly put in extra hours at work. Some people will even have to move in with family as a drastic measure to regain their financial freedom. What is left you can then use to pay off the smallest debt on your list. When you have removed the first one on your list, you can move to the second one, and in this way work your way through the list.
If your debt is completely out of control and you can no longer afford the monthly payments, you can take out a debt consolidation loan. You will then throw together various small debts and pay off one monthly amount against a lower interest rate. This method can help you pay off your debt faster, and not lose your assets.
You can apply for bankruptcy, after which you will be declared insolvent. In such a case all your assets will be sold to pay off your debts. It will not make sense to follow this route if your debts amount to less than R50 000. You will also only be allowed to do so if you have a steady income, and fixed assets that will bring in enough when they are sold to cover most of your debt. The small amount that is left over you can then pay off afterwards. This won’t take long, but while you are under sequestration, you will not be able to be the director of a company.
Communicate with your creditors and be honest. If you cannot pay the instalments, it is better to let them know. Don’t change your phone number and try to run away. This will not guarantee you better sleep.
If legal steps are taken against you, it is important not to sign anything. Know your rights, and contact a debt counsellor. However, it is better to do so before steps are taken against you.
South Africans are proud people, and we want to stand on our own legs, but life is unpredictable. You may fall ill or lose your job, and then won’t be able to pay your home-loan. Registered debt counsellors can help you make the right decisions.
Don’t pay off one credit card with another. You will only dig yourself a deeper hole.
Having gotten rid of your debt, or it being more under control, can lead to a great temptation to incur debt again. Don’t do it! Save until you can buy what you wish to have.
Everyone should have an emergency fund. This will prevent you from incurring debt when a crisis crops up. You will then have cash when the geyser suddenly packs up, you children fall ill, or your car gives problems.
South African Law Centre: http://www.salawcentre.org.za/debt-how-to-reduce-debt-and-pay-off-all-credit-quickly/
Old Mutual Finance: http://www.oldmutualfinance.co.za/blog/personal-loans/a-step-by-step-guide-to-getting-out-of-debt
Your Family: https://www.yourfamily.co.za/your-life/money-and-work/ultimate-get-debt-guide
Insolvency Care: http://www.insolvencycare.co.za/applying-bankruptcy-south-africa/