Ditch the debt: steps to take when you are over indebted

Being in debt and struggling with monthly payment can be scary however, consumers should know there are ways of getting their finances back on track. Creditors are willing to help and provide solutions but getting out of the debt trap will also require commitment and a change in lifestyle.

“While it is always advised that consumers do not take on debt they cannot afford, the reality is that many people do find themselves in trouble and it is important to know that there are systems and processes to help you out,” says Eunice Sibiya, head of consumer education at FNB.

The warning signs that you have taken on too much debt include skipping repayments, borrowing money to pay off debts and using your credit card to fund essential items.

“The most important step of the whole process is to acknowledge that there is a problem and to seek help. The sooner you do this the better,” says Sibiya.

Sibiya suggests approaching your bank or your creditors as a first port of call.

“Understand exactly what debts you have and with which creditor,” says Sibiya. “Once you have done this, approach the institutions and ask for help.”

Creditors and banks encourage customers who are experiencing difficulty with managing their debt to approach them so that debt solutions that fit their needs can be discussed.

“It is critical to note that you will have to make some lifestyle changes,” warns Sibiya. “Just because you have approached your creditor won’t absolve you of your payment responsibilities.”

First and foremost set a budget and keep to it.

“You need to cut out on all unnecessary expenditure and items,” says Sibiya. “This may mean looking carefully at money spent on travel, not going out as much and cutting back on entertainment. However, the sooner you start to get on top of your expenses, the better.”

If you still find yourself with unpaid debts there is an option to go under debt review.

“Debt review should be a last resort,” says Sibiya. “For many indebted consumers it could be the only way out but you should carefully consider the full implications. This includes the processes and ongoing costs of debt review.”

Debt review was designed for consumers that are highly indebted and unable to rehabilitate on their own or after they have approach their financial institution. A debt counsellor will be assigned and is responsible for all your finances. However, it still remains your responsibility to keep tabs on the progress made.

“Under debt review consumers are not able to take on any further debt or use credit cards and will need to stick to a very strict repayment process,” says Sibiya.

You will only be released from the review process once your debt counsellor gives the go ahead, which means you can’t voluntarily remove yourself from the process. Debt review is also not free of charge and costs will differ depending on which institution you apply with. Always make sure that you approach a reputable debt counsellor.

“Try to take back control of your finances by approaching your creditors first and by making lifestyle changes. Debt review should really be the last resort,” concludes Sibiya.

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