I Can't Afford My Debt Anymore – What Should I Do?
If you can't afford your debt anymore, the most important thing is to establish whether you are dealing with a temporary financial setback or a debt problem that has become permanently unaffordable. Many people reach this point gradually.
Your salary may still be coming in every month, but increases in living costs, interest rates, unexpected expenses or changes in your household income can mean there is simply not enough money left to pay everything. You may start using a credit card to buy groceries, borrowing money to pay other accounts or skipping one payment so that you can make another. When this starts happening regularly, simply trying harder to keep up with the payments may no longer solve the problem.
The first step is to understand what you can realistically afford and then choose the debt solution that matches your circumstances.
What Should I Do If I Can't Afford My Debt?
Start by working out exactly where your money is going.
List your normal household expenses and then list every debt repayment you are expected to make each month. Your essential living expenses need to be realistic. Food, electricity, transport, medical expenses, school costs and other necessary household expenses cannot simply disappear because you have debt.
Then compare what remains with your monthly debt repayments. If there is enough money to pay your debts but you have fallen behind because of a temporary problem, you may be able to recover by negotiating with your creditors or restructuring your budget.
If there is consistently not enough money available to meet your living expenses and debt repayments, the problem is more serious.
Work Out Whether the Problem Is Temporary or Permanent
This distinction is important.
A temporary financial problem might result from an unexpected expense, a short period without income or another setback from which you are reasonably likely to recover. In these circumstances, additional time or temporarily reduced payments may be enough to get you back on track.
A permanent affordability problem is different. Perhaps your household income has reduced substantially, your debt has grown too large, your repayments consume most of your salary or you are relying on credit simply to survive from one month to the next.
If your financial position is unlikely to improve enough to make the existing debt affordable, continually postponing payments may simply increase the amount you eventually have to resolve.
Should I Speak to My Creditors First?
Yes. If you are experiencing a temporary problem, contacting your creditors early can be worthwhile.
Explain your circumstances and ask whether a reduced instalment, temporary arrangement or restructuring of the account is available. Do not agree to a payment simply because the creditor is willing to accept it. The arrangement must also be affordable for you.
For example, reducing a payment from R5,000 to R4,000 does not solve the problem if you only have R2,000 available after paying your essential household expenses. A payment arrangement works when it gives you enough breathing room to recover. It does not work when it simply postpones the point at which you can no longer pay.
Could Debt Review Help Me?
If you have a regular income but cannot afford your existing contractual debt repayments, Debt Review may be an option. Debt Review is intended to assist over-indebted consumers by assessing their income and expenses and restructuring their debt repayments into something more manageable. This can be particularly useful where the problem is the size of the current monthly instalments rather than an inability to contribute towards the debt at all.
However, Debt Review does not make the debt disappear. You will still need to make the restructured monthly payment, and interest does not automatically stop simply because you have entered Debt Review. It is therefore important that the proposed payment is genuinely sustainable for your household over the longer term.
What If I Still Cannot Afford the Reduced Payments?
This is where the distinction between restructuring debt and resolving insolvency becomes important.
If your income allows you to repay your debt over time under a more affordable arrangement, Debt Review may provide a workable solution. But some people reach a point where even substantially reduced repayments do not solve the underlying problem.
You may owe considerably more than you can realistically repay, have large unsecured debts, have shortfalls arising from financed assets, or simply have too little disposable income available after reasonable living expenses.
In these circumstances, repeatedly rearranging the debt may not provide the fresh financial start you actually need. A proper insolvency assessment can determine whether another solution, including voluntary sequestration, should be considered.
What Happens If I Stop Paying My Debt?
Stopping payments without a plan does not make the debt disappear. Credit providers may begin collection procedures and accounts can eventually progress to legal action. Depending on the type of debt and the legal process followed, this could ultimately place assets such as a financed vehicle or property at risk.
This is why it is better to investigate your options before the situation reaches that point. If you have already missed payments or received letters of demand or a summons, it does not necessarily mean that it is too late to deal with the problem. It does mean that you should act sooner rather than later.
When Does Sequestration Become an Option?
Sequestration is a formal insolvency process that may be considered when a person's debt has become genuinely unmanageable and restructuring the monthly repayments is unlikely to resolve the problem. The purpose is very different from simply obtaining a lower monthly instalment.
Where you qualify for voluntary sequestration, the process is intended to deal with your insolvency as a whole and provide a structured route towards becoming financially solvent again.
Whether sequestration is appropriate depends on your individual circumstances. Your income, assets, total debt, property, vehicles and the type of debt you owe all need to be considered before a recommendation can be made. It should therefore never be assumed that someone should sequestrate simply because they are struggling with debt.
The correct solution can only be determined after comparing the available options properly.
The Right Solution Depends on What You Can Actually Afford
There is no single debt solution that is appropriate for everyone. If your problem is temporary, negotiating directly with creditors may be enough.
If you have a stable income but your contractual repayments are too high, Debt Review may allow those debts to be restructured into a more affordable repayment plan. If the debt has become so large that repayment is no longer realistically achievable, an insolvency assessment may establish whether sequestration provides a more appropriate solution.
The important thing is to stop measuring your financial position by whether you managed to survive another month. Look instead at whether the debt solution you choose can realistically work for you over the years ahead.
Contact Solvendi for a confidential assessment of your financial position and a clear explanation of the options available.
Disclaimer: This article is intended for general informational purposes only and should not be regarded as legal or financial advice. The appropriate debt solution will depend on your income, expenses, assets, liabilities and individual circumstances. Professional advice should be obtained regarding your particular financial position.
Contact us to discuss your current situation and receive a free detailed assessment of how the process works and what your costs will be. We have legal experts with 20 years experience that can guide you through the process. Our main aim is to be as informative as possible. Let's Chat.
If you require advice with regards to Sequestration, Business Liquidations, Insolvency, Bankruptcy or Credit Rehabilitation kindly contact SOLVENDI as follows:
National: 087 220 0710
Head Office: 010 880 7589
Email: consultations@solvendi.co.za
Website: www.solvendi.co.za
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