A big percentage of the clients that walk through our doors stress about debt. It is very understandable.
Debt can take the joy out of life for the simple reason that to have enough money to support your loved
ones gives you joy and peace of mind. To provide adequately for your family takes away a lot of stress.
It is, however, a fact of life that most people do not have this peace of mind. Most people cannot survive
without making debt. And most of the time debt gets out of hand.
Make this easy calculation: take your nett salary and deduct your monthly installments towards servicing
your debt. Do you have enough money left to live comfortably? If your answer is “no”, or “barely”, you
have a debt problem or you will soon have one because everything rises except your income. After you
have ascertained that, lets look at the solutions.
Debt relief boils down to basically 2 groups of solutions. There are a lot of bewildering names and fancy
phrases but after you cut through that we are left with 2 ways of making your debt easier to cope with.
The first group is to reduce your monthly installments on your debt, and the second is to write it off. It
really is as simple as that.
All the options explained here are given to us by the South African legislator, and can be found in various
acts dealing with the subject.
To explain these 2 options in very easy to understand terminology we will use the simplified example
of John Citizen, with a total outstanding debt burden of R300 000, made up of credit cards, loans, doctors
bills, outstanding school fees, etc.
The first option is to reduce his installments. If he chooses this he will still pay the full outstanding
balances of all his debt as well as the interest thereon, but with the repayment periods stretched over
a longer time, to make the monthly instalments more affordable.
Based on our example of R300 000, the monthly interest on this amount is approximately R4900. This
means that, if he stops all installments his total debt of R300 000 will increase with R4900 each month.
It also means that if he chooses this option, he will have to give more than R4900 per month if he wants
to make this option viable.
Let’s say he can afford R8000 p/m. This will have the effect that all the installments on all his monthly
repayments can be reduced to one singular installment of R8000. He can stop paying the individual
creditors, and only pay R8000, which will then be divided pro rata amongst them. Remember, the first
R4900 of his R8000 is interest, and R8000 minus R4900 equals R3100, This means that on his monthly
installment of R8000, R4900 is interest and only R3100 will be subtracted from the total of R300000.
Therefore, in our example, this option will take him just over 8 years to finalise and completely pay off
all his creditors.
As you will notice, this option gives short term relief, but there are a dark side in the long run. When you
extend payment periods, interest can get very nasty. If you do the calculation in this example, he will
pay a total of approximately R768000 to get rid of his R300 000 debt problem.
The second option is to write off his debt. Not all of it, but a very significant part. Interest plays no role
in this option. In our simplified example, and if Mr Citizen can also afford R8000 p/m towards this option,
it will take him, give or take, just over 1 year (12 months) to get rid of the debt. Further, with this option,
the monthly payments do not have to exceed interest, and therefor the installment can be lowered to
an amount even lower than interest, which is to say lower than R4900. It will depend on his income.
Of course, we use an oversimplified example for some quite sophisticated applications, and the example
is indulgent towards a lot of factors that can play a role which will have to be ascertained and worked
into the formula, and this will be explained to you if you choose to get more information. But it takes
no brain surgeon to see the picture. To a very near margin, it gives you a crystal clear idea of the
differences between these two broad groupings of ways to approach a debt problem.
These options can be utilised in every situation. Our example only covers short term debt, you may have
a bond and/or vehicle financing, which can also fit into one or both of these groupings. There will almost
certainly be an option that suit your needs. There are no debt problem that is too big or too small to
solve. A debt free future is indeed a scenario which can be attained by anyone. It will not happen,
however, if you do not ask for help.
Most people, when faced with financial trouble, will simply ignore the problem, and hope that it will
somehow magically disappear. It won’t. Interest still accrues, attorneys will come into play, legal action
will be taken against you, the Sheriff will come knocking, garnishees will appear on your pay. This costs
money that you will have to pay, over and above the debt that you couldn’t afford to pay, and this
situation snowballs and the problem only gets bigger and bigger. It is always best to face and solve a
problem sooner rather than later. Let’s analyse your situation and find a solution to tackle your problem.
If you need more information please send an email with your questions to email@example.com. Our law
firm have 45 years experience helping people in need.