Many of us fall into this trap sooner or later. We hear about people in financial trouble and we hear about insolvencies, but we think it only happens to other people. Yet, it is always good to know how to stop creditors from threatening you.
That doesn’t mean you will definitely encounter major financial problems without a doubt. But don’t be too quick to think that it can’t happen to you.
It is easy to say what you will do if it is ever to happen to you, or what someone else should be doing who is facing such a situation. It seems as if everybody knows how to handle creditors. But, once you have to personally face this challenge, it becomes a different picture.
What to Expect
When disaster strikes, you think you’ll do the right thing by contacting your creditors and being honest about your situation. No problem with that. That is the right thing to do.
But don’t expect a ‘pat on the back’ from your creditors, telling you what a good person you are for coming to talk to them.
Every creditor will start fighting to get his money first. They are suddenly not as friendly as when they gave you credit. “How much can you pay us now?”, or “when can we expect your next payment? Tomorrow?” are questions that you can expect.
Be alert and educate yourself about the law and what your rights are. Chances are good that you are going to get intimidated or manipulated. You might be in for some bad surprises as can be seen in this article by well-known South African consumer journalist, Wendy Knowler.
What are Your Options?
It depends on your circumstances.
- If you have lost your income, but you stand a good chance of finding new employment, you may try to negotiate with creditors to give you some grace for a certain period. You can actually take out insurance to cover you in a situation such as this. Such a policy may cover your monthly installments for a few months or completely settle the outstanding balance, depending on the circumstances.
- If you just cannot keep up with all your debt (your expenses became more than your income), you might consider the option of going under debt review. Consult with a debt management company. They will take over all negotiations with your creditors. They will negotiate new contracts, with new interest rates with all your creditors. You will pay one monthly installment to this debt management company and they will distribute your money to the various creditors according to the new agreements.
- The final option is to file for insolvency.
Many people might have credit insurance and they are not even aware of it. Many creditors don’t explain credit insurance to the debtor when they enter into an agreement. It is wise to educate yourself on this topic.When applying for credit, be sure to have proper credit insurance in place. Click To Tweet
People who are not self-employed can be covered in the event of illness, disability or when they lose their income due to retrenchment.
Debt Review or Debt Management Companies
If you didn’t have proper credit insurance or you were self-employed and you lost your business, you may find yourself in the situation where you just cannot afford to pay the full installments on your outstanding accounts.
In this case, you might consider consulting with debt management companies and go under debt review. Such a company will then consult with your creditors on your behalf. They would negotiate new contracts with new interest rates.
If you are approved, you make one payment every month towards the debt management company and they distribute the money to the various creditors.
It will have a negative impact on your credit rating though and you won’t be able to obtain new credit while being under debt review.
When you have no means to pay your creditors, you might have to file for insolvency.
In such an event, they will attach all your assets in an attempt to recover as much as possible to pay your creditors.
As in the case with debt review, your credit rating will be impacted negatively. You will not be able to obtain any credit for a period of at least 5 years, which is known as a rehabilitation period.
Keep Yourself Informed
Never rely on someone else to look out for you. Don’t make the assumption that your creditors have your best interest at heart. Keep yourself informed. Educate yourself about the law, what your rights are and the various procedures.Your creditors have their own interest at heart; not yours. Click To Tweet
By being well-informed and prepared, you can save yourself a lot of trouble.
There are great books on the market to get yourself properly informed. Books such as “Consumer Defense: A Tactical Guide To Foreclosure, Bankruptcy, and Creditor Harassment: the Luxury of the Informed” is always good to have in your arsenal.
Others Can Benefit From Your Knowledge and/or Questions
If this post was helpful, or if you have any advice that might be helpful to other readers, please leave a comment in the comment section below.