What To Do If You Have Too Much Debt
For most people, it happens quickly: One day, they're efficiently managing their finances
, and seemingly the next, they're drowning in debt that they simply cannot afford to repay. Does this sound familiar to you?
For people who find themselves with unmanageable debt, the reality is scary and uncertain. But through efficient debt management, as well as the help of their lenders, individuals can regain control of their finances and settle their debt over time.
Steps to follow when dealing with debt
The first and most important step is to speak to you lender, and be frank about your current situation. Never ignore the problem - it will only get worse! Also, try not to wait until your debt is in arrears, or until there are judgements or defaults against your name. However, if this is the case, it will still be possible to reconcile your situation with your lender(s).
Contact all the individuals or companies to whom you owe money, and try to come to an agreement with them about repayments. Most lenders will try to make a workable arrangement to help you settle your debt. Facing the problem head-on in this manner will make it easier to solve issue, and will prove to your creditors that you're serious about settling your debt. As soon as you face your debt - preferably with the help of your lenders - you'll be able to figure out a way to get out of it.
Next is to assess your household budget, and to cut back as much as you can. Limit all unnecessary expenditure, such as cell phone contracts, clothing accounts, excessive entertainment and leisure expenses, and so forth. Trim wherever you can to free up as much additional cash as possible.
As you begin to repay your loans, try to pay off your highest-interest debt first, such as clothing accounts, overdrafts and credit cards. As you pay off each loan, close the account if possible. This will prevent you from falling into debt again. If you manage to pay off one debt in full, take the money you used to pay towards it and put it towards your remaining debt. Do this until you've paid off all your debt.
Consolidating your debt
One way to get on top of your debt is by consolidating it. This is when all your debt is added together, and you repay a single amount each month, at one interest rate, until you have settled the amount due.
Consolidating your debt could help you to lower your monthly repayments and reduce your interest costs, and may even offer certain tax benefits. However, it's critical to note that you may have to put your house up as collateral - and that if you default on payments, you could lose your home. It could also take longer to pay off your debt when you consolidate it.
Explaining debt review, and its pros and cons
Since the National Credit Act came into effect in 2007, it's been possible for over-extended individuals to apply for debt review. Individuals are classified as over-extended when, once they have paid their essential living expenses, they do not have sufficient funds to cover their monthly debt instalments.
If you are under debt review, a debt counsellor will be appointed to you, and will negotiate with creditors on your behalf for manageable repayment terms. Even if you have fallen behind on payments, creditors will not be able to take legal action against you when you're under debt review.
If you go under debt review, you may still be able to qualify for credit in the future, once you have repaid all your outstanding debt. This is because your credit slate will be "wiped clean" once you've settled all your payments. However, you will be banned from applying for further credit (new or extended credit) whilst under review. Doing so will cause you to forfeit your debt review. You will be compelled to cut back on your living expenses, and you will incur certain fees for undergoing debt review.
Ask for help today
If your debt has become too great for you to manage, it's imperative that you speak to your lender immediately. Don't wait any longer - contact your creditors today to arrange affordable repayment terms. Ignoring debt only makes it worse!
Debt can always be settled in full - it just takes time. Commit to repaying your loans, and ultimately you'll be free of debt.
by: AlterSage
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