Are You Falling In A Debt Trap?
August 4th, 2009 | 
Author: 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 with bigger loans. But now the boom, that everyone thought will last for ever, has turned to bust. Interest rates went up and house prices went down. 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.
The problem that people are facing is a cash flow problem. New loans will be used to cover cash flow short fall. But at some point you will not be allowed to take out new loans, because of affordability according to the banks. There are ways to close the gap between income and expense. One of the ways to cut living cost is to changed your spending habits. 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. In the current market there are no buyers for items that need finance, because the banks are not lending. 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 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.
The new National Credit Act(NCA) gave us a new alternative, 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 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. Your debt counsellor will negotiate a payment plan twith your creditors that you afford to pay each month. You will make one payments to the Payment Distribution Agency 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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