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Debt counselling, consolidation and mediation

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Debt counselling

Debt counselling, debt mediation and debt consolidation; these are words bandied about every day. Do you know what they mean?

In Phumelele Ndumo’s book ‘Debt to Riches – steps to financial success’ she covers these topics in detail and in a way that is easily understood and, in my opinion, one of the first books someone in debt needs to read.

When you are in debt there are a number of ways to deal with it. I will simply touch on each topic as I am not an expert on the in’s and out’ of debt counselling.

Debt consolidation

This is where all your debt is put into one account. Speak to your bank about this alternative. This way you only have one debt to pay instead of 10. The best way to do this is with the account that has the lowest interest. This is usually the bond on your house

Debt counselling

This is done through a professional service. To decide if you qualify for debt counselling you need to know exactly how much you owe and how much money is coming in.

The next step is to approach a registered debt counsellor, they will then review the financial situation and, if you qualify, they will then liaise with your creditors to make payment arrangements.

When deciding to go for debt counselling, you need to be over-indebted. This means that you: –

  • Are failing to pay all your debts monthly
  • You pay some debts and skip others
  • You have judgements or garnishee orders against you

If the debt counsellor finds that you are over-indebted, they will draw up a payment plan for you. If you are not over-indebted they will charge you a fee for their time. They may help you with mediation after this or refer you to the bank.

Make sure that you are well acquainted with your debt situation before applying for debt counselling.

Once in debt counselling, this will be registered with the credit bureau and you will be unable to obtain any credit for the next 5 years.

Before finding out if you are eligible for counselling, ask all your creditors for their settlement dates and balances.

All creditors need to agree to the payment plan drawn up by the debt counsellor.

Debt counsellors do not make the monthly payments; this is done by a payment distribution agent!

A lump-sum payment is made to the payment distribution agent, who then pays your creditors.

Once in debt counselling your creditors cannot take legal action against you and your goods cannot be repossessed. If, however, you miss a payment your agreements fall away.

Debt mediation

One of the first things everyone should do before considering debt counselling and consolidation is downsizing your lifestyle. If you go into debt mediation this is something that will be forced on you anyway. Debt counsellors are the people to speak to about mediation.

Once again a payment plan is drawn up and hopefully, the creditors will all agree to it.

Within 5 years of beginning mediation, you must be in a position where your income covers your lifestyle. If not, then you will be placed in debt counselling.

Here are some of the things that the mediator will require from you. These are not negotiable.

Children in private schools must be moved to a public school.

All credit and store cards must be cut up.

A strict budget is drawn up and has to be adhered to.

Getting out of debt is not an easy thing to do and it is important to investigate the company that you use when going for debt counselling.

I feel that changing spending habits as early as possible will prevent anyone from https://kasheringyourlife.co.za/debt-cents-getting-out-of-debt-a-little-at-a-time/ having to go to debt counselling.

Join the Facebook group https://www.facebook.com/groups/iamdebtfree/and learn what I learnt about debt and avoiding get over-indebted.

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