Debt Reconciliation: In this week’s blog, Consumer Debt Support (CDS) look into debt reconciliation. We can also name it debt elimination, another way to assess and eliminate excessive debt by refinancing credit card and other unsecured debt into one manageable and affordable account.

Consumers are finding it difficult to make decisions whether to apply for a consolidation loan or debt review. It is a sticky choice to make, with the right information it can help you to make the right decision.

When you are struggling financially it is the desperate attempts to make plans that can cover the debt payments or family expenses by making another loan, or credit card application without investigating the right options that will most effective deal with the debt problem. We often ask ourselves how did we get so tied up into debt to begin with. The financial pressure in today’s living is one of the main factors of the debt slave problems most of us are facing. The increase of new technology, products and nice to have items are the most common reasons getting into debt.

You can opt for debt consolidation which can be a viable financial solution designed to simplify multiple debt repayments, then can save the debtor money. This involves taking out a single new loan and settling all the debts and paying only one loan.

Some consumers struggle to pay their monthly debt obligations for months on end, and in most cases not being able to afford the debt repayments or due to job loss.  In most of these cases the creditors are struggling to collect the payments from consumers. These arrears accounts are then handed over to their legal departments for collections. What can the collections department do when the consumer is no longer employed or not able to pay for the debt. In this case the consumer could struggle to qualify for a new loan. Their credit report could show they are black listed for late, skipped payments or legal action on the status affecting the credit rating.

The question is, when is debt consolidation a good idea?

In South Africa, when you find you can’t afford your unsecured debt, the creditors can’t collect the bad debt and write the debt. The bad debt book is then sold to debt collectors who will collect the debt and they take the risk. It has become common practice that, you could find yourself being harassed by these debt collectors to settle the debt, pay the interest rates and escalated collection fees. The debt collecting companies mismanaging the account and costing the consumer more money.

Consumers do not always understand the intricacies of taking out another loan to settle previous small loans or bad debts. Many consumers don’t believe in making a new loan to settle another loan is always a good idea.

Debt consolidation can work out very good if the existing small debt is assessed and the consolidation loan is affordable and leave you in a better position than before. Assessing the affordability of the loan is very important, reckless lending is prohibited by the National Credit Act. The new One loan should reduce the monthly installments and the consumer can extend the term of such a loan. This could have a positive impact for the consumer.

The problem with most consolidation loans, is that consumers do not close the paid-up accounts. This neglect leaves an open door with the opportunity to use the credit available on those accounts again. This behavior creates the debt problem all over again, and puts the consumer back into the over-indebtedness position as the debt repayments have become unmanageable.

Here at CDS we have asked the question, to consumer who have consolidation loans: “why did you use the credit on the accounts paid up?” the most common answer was, “we believed we could bring the account up the date the following month. But next month something else came up that cost money and we could not afford to pay the account in full.” Does this sound familiar at all?

Second option is Debt Review:

The last and safest option open to you is then to consider debt review. Debt review in most cases is the last option open to opt for. ‘If debt review fails then it is sequestration of the estate declaring the consumer insolvent.’

Applying for debt review is not an easy road for the first three months at least. Once the creditors receive the documents from the debt counselor they move the account to the debt review department.

The two difficult challenge being in debt review is that the consumer must accept a new budget they need to adjust to and they will no longer have access to further credit.

Understanding the debt repayments will be reduced to what is affordable, the debt will be repaid over a longer period, in some cases the interest rates are reduced. The less you pay the longer it will take to settle the account. Debt review is not a quick fix, you could be in the program for a few years before the debt is fully paid up. Most consumer do not understand when in debt review only a small portion of the payment covers the capital balance. The distribution covers the insurance, interest, service fees and capital debt.

We at CDS can advise that consumers do homework, deal only with reputable individuals registered with the NCR. Registered Debt Counselors can be found on the Debt Counselors Association of South Africa (DCASA) website. http://www.dcasa.co.za/

We at CDS can’t stress enough that consumer make sure their debt counselor is registered. The offices must have a visible and valid National Credit Regulator (NCR) window decal with a expiry date, and the registered debt counselor’s certificate should have a valid expiry date. Should the debt counselors certificate no longer be valid and the date expired, please request a certified copy of their renewal letter from the NCR that indicate the DC is active and renewed.Head over to our website and check us out. Go to our contact-us page, complete your details and we will call you, or you can call us. We deal with applications in all Magistrate Court jurisdictions or National Consumer Tribunals court. http://debtcentre.co.za/contact-us/

We have the experience to take you from the beginning of being over-indebted to end of the process of being declared no longer over-indebted. The debt review status removed and the consumer may enter the credit market with no trace of debt review.

In conclusion:

Finding the best way forward to remove debt from your name and move to the next phase of your financial life-cycle, debt reconciliation can work for you as long as you have a plan. Know the risks before you decide on what the best option will be.