Where to Get Help with Debt

21 May Where to Get Help with Debt

Posted at 16:44h in News by webmaster

Debt is an explosive force that can wreck your financial life. One minute you’re pleased you’ve qualified for a credit card, the next you’re R100,000 deep in debt with no visible way out. Loans, credit cards, store cards, and advances all add up – where do you get help with debt?

There are various ways to get out of debt, including debt review, sequestration, administration orders, and professional debt mediation. Each comes with its own set of pros and cons, which is what we’ll discuss in this post.

The Pros and Cons of Different Debt Help Methods

Let’s discuss the pros and cons of sequestration, debt review, administration orders, and debt mediation.

Sequestration

Sequestration is another name for declaring bankruptcy. Under sequestration, you’ll give up your assets to pay your debts, so long as they cover at least 20% of your debts. To qualify for sequestration, your liabilities must exceed your assets.

For example, if you have a car worth R160,000 but owe R250,000 in debt, you’re eligible for sequestration. Since your car would cover at least 20% of your debt, it would be auctioned to pay it off, and the rest of the debt would be written off.

Sequestration remains on your credit record for up to ten years. After you’ve been sequestered, you must wait four years to apply for a rehabilitation order, which would allow you to apply for credit and act as director of a company again.

Pros

Your debt is written off, you would be protected from legal action, and there’s a limit to how long you can be sequestrated for.

Cons

You’ll lose your assets, you can’t enter into contracts, and the mark can stay on your credit record for up to ten years. Sequestration applications can be costly.

Debt Review

Under debt review (a legal process), a debt counsellor would negotiate for reduced interest rates and repayments to free you of over-indebtedness. You won’t lose any assets and will be protected from legal action. The National Credit Act of 2005 specially provisioned for this. It’s written into law that:

Creditors must comply with reasonable requests from your debt counsellor to reduce interest rates, extend repayment periods, and cut repayments.
Creditors may not take legal action against you.
Your assets may not be seized, and your wages can’t be garnished.
You can apply for credit after you have repaid your debts.

After you apply for debt review, your debt counsellor will create a repayment plan. When it’s approved by the court, you’ll make monthly repayments to a PDA (payment distribution agency), which will distribute the payments fairly among your creditors and ensure everyone is paid on time. After three to five years, your debts will be paid off, and you’ll be allowed to apply for a clearance certificate.

You can submit this clearance certificate to the bureaus, which must expunge all records of the debt review flag and the debt that led to it. Then, you can begin rebuilding your credit record responsibly.

Pros

You’ll have someone to manage repayments to creditors for you, you can pay less on interest and repayments, you’ll have access to legal protection, you won’t lose your assets, your repayment due dates can be postponed, you can have credit written off if it was granted recklessly, debt review fees are capped by the NCA, and all record of your debt and debt review can be expunged after you’ve completed repayments.

Cons

The process lasts for three to five years and you can’t take out credit while under debt review.

Administration Orders

Under an administration order, the court sets out how much you should repay each creditor. You’ll be appointed an administrator, who will administrate – distribute – your estate among your creditors to repay your debts and create an affordable repayment plan.

You’re only eligible for an administration order if you owe less than R50,000 in debt. Once you’ve repaid all your debts, you can apply for a 74U certificate, which states all your debts have been paid. To remove the order from your credit profile, you must apply for a 74Q rescission order. Both of these require the help of a legal professional.

Pros

You’ll have an affordable repayment plan and be protected against legal action, and when you’ve paid all your debts, you can apply for a rescission order.

Cons

Your estate can still be sequestered (auctioned), you can have legal action taken against you for default on your bond, it’s illegal for you to take out credit during administration, you’re not protected from a garnishee order (where your employer deducts from your wages to pay creditors), you must still pay interest on your debts, legal fees can be costly, and there’s no limit to your repayment period.

Debt Mediation

Debt mediation works similarly to debt review in that a professional negotiates on your behalf for reduced interest rates, cut repayments, postponed repayment dates, and extended repayment periods; however, you don’t have the added advantage of legal protection and protection from asset seizure – you’re still subject to legal action if you default on a payment. Moreover, debt mediation can be costly.

Additionally, creditors don’t have to agree to negotiation efforts, either, as they’re not mandated to as they would be under debt review by the NCA (National Credit Act).

Pros

You could see cut interest rates, reduced repayments, extended repayment periods, and postponed due dates.

Cons

You could still be subject to legal action if you default, debt mediation fees are often expensive (there’s no limit on the fees they may charge), and your assets can be seized.