Debt Consolidation, Debt Counselling or Debt Trap?

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Tuesday, August 18th, 2009 Subscribe To Our Feed

In boom times it is easy to find new loans and easy to service the loan. The reason is that your house keeps going up in value. This allowed you to do a consolidation loan on your mortgage from time to time. This increased your cash flow so that it was easy to make the monthly payments to creditors each month.

Your living standards increased, because you where buying more luxury items like bigger car and house. But now the boom has finally turned to bust. Interest rates went up and house prices stagnated. It has become difficult to sponsor your life style with new loans, because the banks have tightened their lending criteria over the last 6 months.

People start to have cash flow problems. As soon as there is a cash flow short fall, new loans will be made to help pay the current creditors. Soon or later you will not be able to take out new loans, because of affordability according to the banks new criteria. You need to find ways to increase your income and lower your expenses. One of the ways to cut living cost is to changed your spending pattern and your life style. But the problem is that if you have upgraded your living standards to a bigger house and car, you might find that these big ticket items are difficult to sell in a recession. There are no buyers in this current market. You are stuck with your expensive assets and with the high monthly payments.

To find a new loan every time you need money to pay for your current loans, is not the answer. The new loan will not last long and before long you will have more debt to repay over a longer period of time which is not a much better situation.

There is a new alternative to debt consolidation, namely debt counselling. Instead of applying for a new loan to cover your short fall, you can take responsibility for you 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 counselors.

You will be protected from your creditors taking you to court 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 status can end in two ways. The first will be when you have repaid all your debt. The second way will be if you end it yourself. That will be when your personal situation changes so that you are able to make full repayments to all your creditors. They will have no reason to take legal action against you, so you don’t need the protection from debt counselling any more.

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