As soon as you realise that you aren’t coping with your repayments, you must take the necessary steps to protect yourself from getting into more debt, as well as any legal action a credit provider could take against you.
At this point, a few options can offer some debt relief, such as contacting your credit provider for rescheduling or consolidating or applying for debt review. Another option is to apply to the court for debt administration.
What is debt administration?
There’s a difference between debt administration and debt review. Debt administration is a process where your instalments are reduced and only paid to your credit provider every 3 months, resulting in an extended term. On the other hand, debt review entails a counsellor helping you to manage your credit by negotiating with credit providers to reduce your instalments, interest and term.
How does debt administration work?
After a debt administrator takes over the management of your finances, they will start a legal process whereby the court orders them to set aside enough of your income to cover your basic living expenses. They will then negotiate a lower instalment and new payment plan with your credit provider.
Debt administration stays in effect until your debt is paid off. During this time, your income will be handed over to the administrator and you will only receive the portion the court decided you need to cover your expenses. The debt administrator will keep the remainder of your income and use it to pay your credit providers quarterly.
When to use debt administration
- You want to stay out of court – the court order prohibits all listed credit providers from taking any legal action against you while you're under administration
- You cannot afford the agreed monthly payments – your administrator can negotiate reduced instalments, spread out over a longer period
Important to know
- You can only use debt administration if your debt is less than R50 000
- The administrator pays your credit providers every 3 months, so it takes longer to pay off your debt, and the interest adds up
- The debt repayment often becomes a salary deduction
- While you're under administration, you won’t qualify for more credit and you'll be listed as "under administration" at the credit bureau
- The plan, as set out by the court, is legally binding
- There are costs involved, which include the cost to obtain the administration order and monthly payments to the administrator for their services
While your debt won’t get written off during this process, the strict plan set out by the court will provide you with debt relief and help you live within your means. Use this time to recover your credit score so that you can eventually become good for credit again.