There is nothing worse than the despair you feel when you are in debt. You feel like a pariah and as though everybody can see right into the very fiber of your being, nodding their heads and saying, “yes, we can see you cannot pay your bills, there is nowhere to hide”. This makes you feel even worse, destroys your self-confidence, affects your family life and quite possibly causes feelings of inadequacy and incompetence. Fortunately you are not the only person who finds themself in this position, and so there are a number of alternatives to submitting to a session of debt counselling.
Option 1: Bankruptcy
Filing for bankruptcy means that you acknowledge that you cannot pay your debts now or in the near future. It takes the pressure off you as the money that you owe is completely written off. It also means that your creditors have to cease all their efforts in trying to recover their money from you. On the down side, the process of bankruptcy can be embarrassing. You lose your house and you may lose your job. Your credit rating takes a huge knock and you cannot apply for credit. Future credit applications have to reflect that you were bankrupt.
Option 2: Sequestration
As an individual applying for sequestration you will be declared insolvent. One of your creditors can approach the courts and have you sequestrated. If the amount of your debt is such that it would take you longer than ten years to pay it back (this excludes your home loan), then sequestration is a better choice than Debt Review or Debt Management, otherwise you will be repaying this debt for the rest of your life at an exorbitant interest rate. By being sequestrated you lose all your assets which are sold off by auction. You are listed at the credit bureau as a bad risk for ten years, but after 5 years you can apply for rehabilitation.
Option 3: Debt Consolidation
This option can work well for you if you are still receiving a regular salary and can manage the repayments, and if you have enough equity in your mortgage bond. It certainly protects your credit reputation and your credit rating with financial institutions so you would be able to borrow money or apply for credit in the future. Your home is usually held as security for your debt consolidation loan and if you default on these payments you could end up losing your house – a procedure known as foreclosure where the bank sells your house to recover its money. Your house is one of the most valuable assets you will ever own so you need to be very disciplined in keeping up with your consolidation installments.
Option 4: Debt Management Plan
This is something that is simple and easy enough for you to do on your own, although by the time you get this into place, your credit rating will be down at zero anyway. However, because you have made the effort to come to an arrangement with your creditors, they will be favorably disposed towards you. Just make sure that if you default in one of your arranged payments, you have to negotiate a new plan again. This payment structure means that you should not be black listed anywhere, as long as you have contacted the creditors before they resorted to legal recovery methods.
Armed with the information presented above, you should be able to make a decision as to where you fit in and how you can deal with your debt problems. It is a fact that when you are in debt you get charged for every single thing that the company has to do to recover their money from you. You have to pay for all the legal services, you have to pay extra bank charges if you go over your overdraft and you have to pay the higher interest rate if you have missed a payment. So, from having a manageable debt, you are soon right up there in the high stakes debt bracket with everybody making money from your problems. This is a sad but true state of affairs. And one you want to avoid. Rather go for debt counseling than have to face these alternatives.