Friday, October 4, 2013

Debt Problem

Over-indebted? Struggling with your monthly expenses and bills? Cancelling Insurances to make money available for food and clothing? Borrowing money to pay debt? Missing payments? Debt Counselling or Debt Review as it is known in South Africa, is a great way to restructure your debt. With some of the concessions currently made by the banks, it is also the best way to settle your debt. In many instances banks are lowering interest rates, stripping out that administration fee and even extending the term of the loan, all in an attempt to help consumers. It is done in terms of the National Credit Act, and is the first Consumer Protection legislation the industry has seen.

Here is a good comparison. Until the advent of the National Credit Act in 2007, one of the few ways available to restructure your debt was through a consolidation loan. This in itself was a strange way to solve a debt problem, as it clearly indicates one needed to take debt at a higher interest rate to settle other debt usually at lower rates. The big problem is that in terms of the National Credit Act, credit agreements, like a consolidation loan or personal loan in many instances attract a higher interest rate than credit facilities like overdrafts and credit cards. So when people talk about consolidating their debt into one easier payment via another loan, who exactly benefits? Most certainly the lender! Often one can see that through a consolidation loan with its maximum period of 5 years, a person would end up paying back more than double the borrowed amount. Also look closely at how much the capital sum reduces after the first payment. Clearly two thirds of that first month’s payment is going straight to fees, credit life insurance and interest.
So what is the solution? Speak to a Debt Counsellor to advise you on the right solution for you. Everyone’s situation is different, and the right advice now will ensure that you have a debt free financial future with a clear credit record.

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