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, that everyone thought will last for ever, has turned to bust. Interest rates went up and house prices went down. It has become difficult to sponsor your life style with new loans, because the banks have tightened their lending criteria over the last 6 months.
People start to have cash flow problems. The cash flow short fall will be sponsored by taking out new loans. Soon or later you will not be able to take out new loans, because of affordability according to the banks new criteria. There are ways to close the gap between income and expense. One of the ways to cut living cost is to 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 big ticket items like houses and cars. You are stuck with your expensive assets and with the high monthly payments.
It is not the solution to your debt problem to go and find a new loan to cover your shortfall on current loan payments. The loan will cover a couple of payments, but at the end of the day you will sit with higher loan payments and more debt to repay.
Thanks to the new National Credit Act there is an alternative, 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 counselors.
You will be protected from your creditors taking legal action 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. One payment will be made to the Payment Distribution Agency(PDA) each month and the PDA will pay all your creditors. You will not be allowed to take on new credit like use your current credit cards and store cards to buy goods.
Your debt counselling status can end in two ways. The first will be when you have repaid all your debt. The second way will be if you end it yourself. That will be when your personal situation changes so that you are able to make full repayments to all your creditors. They will have no reason to take legal action against you, so you don’t need the protection from debt counselling any more.
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