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Debt Management

Debt Management

When it comes to Debt Management, there are only 2 debt solutions were someone else will manage your existing debts for you; Budgeting Services and Insolvency Services (Debt Agreements and Personal Insolvency Agreements).

Budgeting Services will manage your debts for you for a fee.  This is great if you are disorganised but can comfortably afford your debts.  The Budgeting Service will debit your account and pay your creditors for you.

If you can’t afford your debts Insolvency Services is an option for you.  A Debt Agreement Administrator or a Trustee will put forward an agreement to your creditors based on what you can afford.  One payment will be made to the Debt Agreement Administrator or Trustee and they will distribute the funds to your creditors. You will generally repay less than you currently owe but there will be a notation on your credit history.

There are other options to manage your debt yourself.

Follow these steps to self-assess your situation, and discover which debt management solution is best for you:

Step 1. Add up your debt?Woman managing her debts

Regardless of what strategy you choose this is the first step.  For many, this can be a really uncomfortable process especially if you’ve put your head in the sand for a long time.

Step 2. How much are the repayments?

Next, to the debt, write down the repayment.  To make it more useful work out how much per pay cheque it is. For example: if you get paid weekly but your credit card bill is monthly, multiply the payment by 12 and divided by 52.

Step 3. How much can repay?

You don’t need to do a budget, though we would recommend it. You do need to decide how much you can afford to repay each pay cheque.

Step 4. Can you afford your debt?

If you can afford to repay more than your current repayments you can use Payment Strategies, Credit Card Transfers and different types of Debt Consolidation.

Payment Strategies

There are 2 main payment strategies; High-Interest First or Snowball. With High-Interest First you make all the minimum payments and then put the leftover payments on the debt with the highest interest. The snowball method you use the left over payment to go towards the debt with the lowest balance.

Credit Card Transfer

Many companies offer “Balance Transfers”.   You transfer your credit card debt onto their credit card which has a low interest or no interest.  The danger is that if you don’t close the other credit card you can end up with double the debt.

Debt Consolidation

Debt Consolidation involves replacing all your separate debts with one new debt. The new debt could be a personal loan, a mortgage, even a balance transfer could be considered debt consolidation.

If you can’t afford your repayments those options won’t work for you and you should look at an insolvency option like a Debt Agreement or Personal Insolvency Agreement.  If you can’t afford any debt repayments bankruptcy might be a good option.

Debt Agreement and PIAs

A Debt Agreement and PIA’s are insolvency agreements. All the debts are included in your agreement with one regular payment. The payment is based on what you can afford however there is a notation on your credit history.

 

Still unsure which option is best for you?  Give us a call on our helpline.  A trained debt consultant will assess income, expenses and debts then walk you through your debt management options.