August 20th 2009 01:20 pm
Don’t Fall in this Debt Trap
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 has finally turned to bust. Interest rates went soaring and house prices slumped. It has become more difficult to sponsor your life style with new loans, because the banks have tightened their lending criteria.
People start having cash flow problems, because their real income does not cover all their expenses. New loans will be taken out to cover the cash flow short fall. Soon or later you will not be able to take out new loans, because of affordability according to the banks new criteria. You need to find ways to increase your income and lower your expenses. One of them is to cut living cost and changed your spending pattern. But the problem is that if you have upgraded your living standards to a bigger house and car, you might find that these big ticket items are difficult to sell in a recession. In the current market there are no buyers for items that need finance, because the banks are not lending. The buyers have disappear and you are now left with your expensive assets and with very high monthly payments to the bank.
To find a new loan every time you need money to pay for your current loans, is not the answer. The new loan will not last long and before long you will have more debt to repay over a longer period of time which is not a much better situation.
There is a new alternative to debt consolidation, namely debt counselling. Instead of applying for a new loan to cover your short fall, you can take responsibility for you 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 taking you to court while in debt counselling. You will not be allowed to spend money on luxuries and you will have to live according to a strict budget. The payments that you make to your creditors each month will be negotiated by your debt counsellor to an amount that you can afford to pay. You will make payments to the Payment Distribution Agency and the PDA will pay all your creditors every month. You will not be allowed to borrow money or use your current credit cards and store cards.
Your debt counselling will end when you have repaid all your debt or your personal situation changes so that you are able to make full payments to all your creditors.
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Tags: debt consolidation, debt counselling, debt counsellors
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