Are You Falling in a Debt Trap?

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Saturday, August 1st, 2009 Subscribe To Our Feed

In boom times it is easy to find new loans and easy to service them because your house keeps going up in value and you could do a consolidation loan on your mortgage in no time to help you with your repayments.

Your living standards increased, because your cash flow increased. So with the increase in cash flow new luxury items were bought like bigger car and house. But now the boom has turned to bust. Interest rates went up and house prices stagnated. It has become more difficult to sponsor your life style with new loans, because the banks have tightened their lending criteria.

The problem that people are facing is a cash flow problem. The cash flow short fall will be covered by taking out new loans. At some point you will not be able to take out new loans, because of affordability according to the banks new requirements. You need to find a way to increase your income or lower your monthly expenses. One of them is to cut living cost and changed your spending pattern. The problem is that if you have improved your living standards to a bigger house and car, you might find that these large ticket items are difficult to sell in a recession or declining market. There are no buyers in this market. You are stuck with your expensive assets and with the high monthly payments.

To try and find a new loan to help you pay for your monthly payments is not the answer. The consolidation or new loan will cover a couple of payments, but at the end of the day you will sit with higher loan payments and more debt to repay.

There is a new alternative to debt consolidation, namely debt counselling. People should not apply for a new loan to cover the short fall. They should take responsibility for their 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 counsellors that are appointed by the national Credit Regulator.

You will be protected from your creditors taking legal action while in debt counselling. You will not be allowed to spend money on luxuries 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. One payment will be made to the Payment Distribution Agency(PDA) each month and the PDA will pay all your creditors. You will not be allowed to borrow money or use your current credit cards and store cards.

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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