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Debt stress can be very daunting. Sometimes life happens and despite your best efforts, you simply cannot keep up your personal loan repayments. The good news is that there are ways to get debt relief.
You should always talk to your credit provider to make a payment arrangement as soon as you realise that you may default on your loan repayments. In most cases, your lending company will help you with a debt management plan to assist you in managing your loans. It is in its best interest for you to keep paying – even if it is a reduced amount. In extreme cases, when you cannot come to an agreement with your credit provider, you can call on legal help.
There are two legal debt relief processes available to South Africans. These options are debt administration and debt counselling.
What is Debt Administration?
If your total debt is less than R50 000, you can apply to a court to be placed under debt administration. Your creditors can attend your hearing. They may question you about your assets and standard of living. The issue of cutting down on expenses may be discussed as well. The court may order you to sell certain assets before proceeding with administration.
What are the benefits of debt administration?
The court will calculate the debt repayment that you can afford every month and a debt management administrator (usually an attorney) will be appointed to pay your creditors on your behalf.
While an administration order is in force, credit providers cannot take legal action against you without the court’s permission.
If a credit provider wrongfully collects any money from you while you are under administration, it can be forced to refund the full amount.
What are the disadvantages of debt administration?
You pay your monthly instalment, as ordered by the court, directly to the administrator. The administrator first deducts 12.5% of the instalment as their own fee, and then pays the rest to your credit providers.
Some administrators deduct an extra 10%, or more, as collection commission, however the Appeal Court has ruled that this may not be done. Unfortunately, the administration process is not well regulated and many administrators therefore get away with deducting unlawful fees and misleading consumers.
Not all your creditors are paid every month. The administrator takes turns paying the different accounts which means that each credit provider may only receive payment once every three or four months. In the months that no payment is made, interest continues to run on these accounts, and your debt increases instead of decreases.
How long does debt administration last for?
In theory, an administration order should last five years. However, because the amount you owe can increase due to interest charges, an order can last for up to 10 years.
What is Debt Counselling
Debt counselling is when a debt counsellor helps you to manage your money and negotiates new payment plans with your credit providers on your behalf.
What are the advantages of debt counselling?
Monthly debt instalments are reduced to an affordable amount.
Once a payment plan is made by an order of court, creditors cannot take legal action against you.
Interest rates are reduced on average from 20.5% to 9.85%.
A single debit order will be deducted from you each month and used to pay all your credit providers.
What are the disadvantages of debt counselling?
Because your monthly commitments are reduced, it can take longer to pay off your debt, which means that you end up paying more.
You cannot access more credit while you are under debt counselling.
It is not free. You have to give the counsellor a once-off payment or pay monthly review fees. In some cases, legal fees and the fees of a payment distribution agent (PDA).
Before you seek debt administration or debt counselling to alleviate your debt stress, consider whether you might be able to apply for a debt consolidation loan.
What is Debt Consolidation?
A debt consolidation loan gives you the opportunity to combine all of your debt and loans into one consolidated loan which you apply for from a single, reputable credit provider such as Bayport Financial Services. The consolidation loan offers one single loan repayment, which means that you are likely to pay a far lower interest rate at repayment terms that are manageable by you.