How to Get Out of Debt without Consolidation Loans

Making more debt to get out of debt is not always the solution. You should not take out a debt consolidation loan that has a higher interest rate than the loan or credit you already have and mistakenly think you are getting out of debt this way. If you were unable to pay the debt at the present interest rate, you will also not be able to pay a consolidated amount with higher interest rate. If you really want to know how to get out of debt, consider other options as well.

How to Get Out of Debt Through Debt Review

One option is to go under debt review. In this way, you pay off all your debt through a consolidated monthly instalment, which is done by means of a debit order. Your debt councillor negotiates with the various creditors for lower interest rates and lower monthly instalments. The court order stipulates the amounts to be paid and your monthly consolidated payment is then made and amounts distributed to each of the creditors. Once the debt has been paid in full, you receive a debt clearance certificate.

Benefits of debt review:

  • One lower monthly instalment, instead of several payments to different creditors.
  • Creditors cannot harass you or take further legal steps.
  • You do not lose any assets.

Disadvantages of debt review:

  • If you miss a single payment or make late payment, the debt review can be cancelled and the creditors can demand full payment of the outstanding debt.
  • You cannot enter into credit agreements.
  • It can take several years before the debt is paid and, until then, you cannot enter into any type of credit agreement.

When it comes to a solution for how to get out of debt, you can consider debt review if your debt is more than R50 000 and you have a monthly income. Debt review is only a sound solution if you can pay off all the debt within five years.

How to Get Out of Debt Through Voluntary Sequestration

If your debt is considerable, and the likelihood of being able to pay it off in five years is slim, voluntary sequestration may be the better option. This also applies if you have considerable debt, but do not have a monthly income and you will be able, with the help of family or cash reserves, to pay the remainder in one lump sum. If you plan to pay the remainder off over 18 months, you will need a monthly income.

How It Works

Your insolvency practitioner applies to court on your behalf to have your estate surrendered. If approved, the court appoints a curator who oversees the sale of assets and distribution of benefits to the creditors. Note that the creditors must at least be able to receive 20 to 25 cents out of the rand. All the sequestration costs must also be covered through the sale of assets on auction. Once the instruction is given to the lawyers to apply for sequestration, you will cease payments to creditors. The creditors cannot take any further legal action once the notice of application has been published.

The assets in the estate are sold, benefits distributed, and the account finalised. You can get rid of up to 80% of your debt through the sale of assets, with the remainder payable in a lump sum or through down payments over a period of 18 months. You will then be debt-free and can start to rebuild your life.

Benefits of voluntary sequestration:

  • Get rid of debt in a relatively short period.
  • No monthly payments needed once the account is finalised.
  • Creditors cannot harass you or take further legal action.
  • No accruing of interest.
  • You can still enter credit agreements with the consent of the curator, and by disclosing your insolvency status.
  • You are debt-free.

Disadvantages of voluntary sequestration:

  • You have the status of “insolvent”.
  • You cannot hold directorship and certain employment positions.
  • You will lose immovable property assets.

Now that you know how to get out of debt through voluntary sequestration, call on our insolvency attorneys to assess your financial situation to help you determine whether you qualify for sequestration, and to assist you with the process to become debt-free.

 


Disclaimer: Information is relevant to the date of publishing and is not intended as any form of legal advice. Please call on our attorneys for legal guidance rather than relying on the information herein to make decisions – October 2017.

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