What to do when you struggle to pay debt

When you take out a loan and sign a credit agreement, you enter into a legal contract. You agree to pay back the amount you have borrowed, as well as the specified interest and costs, within the period of time required. When you don’t pay, you are in breach of contract.

The consequences of missing a payment, or paying late:

• Costs and charges are added to your balance, so you get deeper into debt.
• It shows up as negative information on your credit profile.
• You will become stressed and anxious.
• The credit provider can take legal action against you.

Steps when you struggle:

1. Draw up a budget, manage it closely and revise it when necessary.
2. Don’t get deeper into debt. Talk to your family and get everybody’s buy-in to reduce debt. Close unnecessary accounts.
3. Track your expenses by writing down every cent you spend. This will show you where your money goes and help you to see where you can save.
4. Add income. Sell anything you don’t need and use your hobby to make extra cash.
5. Contact your credit providers to negotiate an arrangement that will help you. For example, lower instalments over a longer period or a loan to consolidate your debt.
6. As you pay off one account, use the money to pay more on another loan.
7. See if you can switch to a cheaper insurance product.
8. Draw up a list of all your debts and decide which ones you should get out of the way first.
9. Ask professional advice if you need to.
10. Keep your eyes on the future – sacrifices today will mean rewards tomorrow.

The consolidation option

Taking one large loan to pay off your smaller debts is called debt consolidation. If you consolidate your debts, you will have one monthly payment, rather than many. It makes it easier to keep track of your payments.

Other benefits are:

• The one payment should be lower than your previous payments added together.
• Your credit profile will improve over time because fewer accounts or debts will reflect on it.
• You will not be listed at a credit bureau.

The downside is that you will probably pay the consolidated loan back over a longer period than you took your original loans for. Read more about debt consolidation in our article, Debt Consolidation loans.

The collections process

Step 1: The credit provider sends you an SMS or email, or call you (or do all three) to remind you or pay or to make an arrangement with you.

Step 2: The credit provider sends you a Section 29 letter of demand, informing you that you are in default and asking you to pay. If you don’t pay within 10 working days, legal action will be taken against you. The letter will also tell you that you have the right to visit a debt counsellor.

Step 3: Legal action is instituted. You will receive a summons to appear in court.

Step 4: You have to appear in court.

The secret to making regular payments, is to take action before you have to skip a payment. Don’t wait until it’s too late. Talk to your credit providers and make a plan.