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Taking care of debt

Debt, the deadly killer.

Cost of living seems to go up day by day and the middle income consumer can’t even cope, then how are the less fortunate suppose to survive? I’m working for the second largest IT firm in the world and has suffered a three year in a row “NO INCREASE”, thus putting me so far back I could actually resign and look for a student job somewhere, maybe I’ll  earn more. Fact of the matter, I’ve spent so much on my credit card and my debt is starting to crunch me like nobody could imagine (I am sure many other consumers and “spenders” feel the same).

An interesting article shows that some steps could save you in the end. Well, take a look..

Johannesburg – South Africa has not yet shaken off the weight of the consumer-led recession.

At 78%, the ratio of debt to disposable income is still far too high for that.

In addition, it looks as if many consumers deliberately built up further debt in the Christmas period with a view to now applying for debt counselling.

Excessive debt can also have serious implication for the economy.

The current debt position of many South Africans has also raised concern about the brake that this could place on economic growth. But not all debt is bad.

Stanlib economist Kevin Lings says that debt is good if it is used by companies, government and individuals to buy assets that increase in value. That’s provided there is sufficient cash flow to pay off the debt.

Lings says it’s not always necessary for assets to exceed the debt, but then the consumer must still be financially able to repay the debt.

A consumer has too much debt if debt repayments hamper cash flow and he can’t repay all the debt in time. That leads to panic and tension, because of the number of unpaid accounts and the large sums involved.

The biggest mistake that consumers in this position can make is to ignore their debt.

How to take care of the problem

According to guidelines set up by the National Credit Regulator (NCR), consumers who feel the pinch of their debt must immediately contact the credit providers. Most credit providers will be prepared to receive a smaller payment, rather than no payment.

It is also important to discuss the financial situation with the family, so that the necessary adjustments can be made, especially if unnecessary expenditure on luxuries must be cut.

After that, it’s important to draw up a budget with a list of priorities for repayment.

According to the NCR, the essentials, like a home mortgage bond, electricity and insurance, must be paid first, then the day-to-day expenses.

Provision must be made in the budget to pay the most expensive debt off first. That’s usually debt on credit cards and personal loans, especially from a microlender.

If necessary, luxuries – like eating out, entertainment, alcohol or cigarettes, domestic servants, garden workers and gambling – must be eliminated in order to pay off the debt.

People who are feeling the pinch of debt must at all costs avoid borrowing money to pay off the debt. Further loans simply create more debt – so do not obtain more shopping cards or credit cards in an effort to get out of the debt.

For people who are deeply in debt and lose their jobs, the last resort is to use part of their package to pay the debt.

The NCR advises consumers to cut out all non-essential items. This builds discipline, and the money saved in this way can be used to pay the debt and can later be put away as savings.

Rather than cancelling insurance policies in an attempt to save money, try to cut out luxuries. Insurance policies should also be reviewed regularly, and the premiums should be adjusted if the value of the insured goods has fallen.

Another guideline from the NCR for avoiding excessive debt is to return articles to the credit provider if you can no longer afford the repayment. In this way, you will have far fewer problems than if the credit provider starts threatening to repossess.

In terms of the National Credit Act, consumers are entitled to return goods if they can no longer afford the repayment, if certain procedures are followed.

Luke Hirst, MD of debt counselling company Debt Busters, says that consumers must find out about their rights if they are threatened with repossessions and summonses.

In terms of the National Credit Act, credit providers must give consumers written notice and state what the options are, including bringing the payments up to date.

Before the credit provider is allowed to cancel any agreement, the consumer has the right to pay all arrears amounts.

Hirst says that South Africans are still burdened by too much debt, and the only way they can be helped is if the interest rate is cut by a further 1,5 to 2 percentage points.

Hirst thinks it will be still be more than five years before the debt crisis is completely over. At present, 11m of the 18,7m active credit users are a month or more in arrears with their debt.

Lings says the lowering of interest rates makes it easier to repay debts. He expects further debt consolidation and then a gradual improvement in debt positions.

– article by Sake24

Debt the deadly killer.

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