Staying in Debt Review Despite the Increasing Cost of Living
Debt review is a fantastic process which can help you repay your debts in a more realistic and achievable manner every month. The process can and will save consumers thousands of Rands in fees and interest as credit providers make amazing concessions to speed up the repayment process and assist their clients.
The process only works however as long as repayments are made. Missing a payment can derail the entire process and all the benefits that it offers. Dropping out of debt review half way through can actually be highly detrimental to a consumer’s situation and so it is vital that repayments are made monthly and never missed.
Costs Go Up but Your Debt Review Payment Stays the Same
When a person enters debt review the Debt Counsellor looks at their budget and calculates how much the family needs to cover their monthly living costs. The Debt Counsellor will work out things like monthly groceries, electricity, transport costs and even saving towards annual costs like car & TV licenses and school clothes and books. Once they have that figure they will compare it to the family’s income and then see how much is available to service their debts each month.
Having worked out a repayment plan, over a reasonable time period, they will submit their proposal (along with the credit provider’s thoughts on the proposal) to the local magistrate’s court. There a Magistrate will have a look over the proposal and responses from credit providers and make a ruling restructuring the consumer’s debts.
The court order will have a set amount which needs to be repaid monthly over the time period of the order (for example 60 months). The repayment amount is now set in stone but as we all know the cost of living is not. Over time things become more expensive. So what happens when the increased cost of living goes up putting more and more pressure on the consumer’s ability to make their set monthly debt repayment?
In the past, it has been very popular for some credit providers to ask that their debt repayment amount goes up each year. This is because of a naive and perhaps greedy attitude on their behalf where they assume consumers will have more money available to pay each year during the process. They probably think that all consumers will receive an increase in income which will be much higher than the rate of inflation.
In most cases, this is not what happens. Most consumers’ income goes up at a comparatively lower percentage than the increase in the cost of living. This means that consumers actually have less and less to cover all their costs and debt review repayments each year.
While it is somewhat unrealistic to think that your income will increase each year at a pace with the increased cost of living, it is important to try to get in more income over time. There may be a family member who can take on a part time job who previously never worked. This may even include younger ones walking the neighbour’s dog for some pocket money.
It may involve being brave and asking your employer for an increase rather than just waiting. If you are working hard they will not object to your asking (they may not give it to you but at least you asked, right?)
Though it is scary you may consider looking for new employment opportunities which will nett you a higher income. Just try to ensure the company you are going to potentially work for is stable before making the change.
Sticking To Your Budget
When you enter debt review you will work with your Debt Counsellor to come up with a realistic budget (which the Magistrate will review and adjust if needed) which will enable you to (1) cover your needed costs (2) save towards both expected and even unexpected costs and (3) make sure you have a reasonable amount to pay towards your debts each month by reducing unnecessary expenses.
It is important that you do not go beyond the budget and spend more than you have to each month. One of the main areas where you can create future trouble for yourself is by not saving the amounts needed for annual expenses and unexpected costs worked into your budget each month. Spending those funds now leaves you exposed in the future. Remember that you also can try spend less than the budgeted figures so that you increase the cushion for when costs do escalate.
Though it seems obvious, it is important to make an effort to spend less. Not only less than you used to but also on an ongoing basis with your normal monthly costs.
If you are shopping for meat at one shop and find out that a local butcher or another shopping chain is running specials then head over there and reduce your costs. If you have been running the heater a lot then maybe you can make an effort to dress the family warmer and cut back on your electrical spending. If you find your transport costs going up look at car pooling and other means to reduce your spend.
Debt review gives you a fresh start but it is not the finish line. It is important to realize that you have been given a new chance to start to make the needed changes to your regular spending habits. While in the process, you should make an effort to become a clever shopper. Find those factory shops; learn to sew your own clothing, clean your own home or garden rather than hire in help.
Amending the Court Order
If you are going to be experiencing a big change to your income or expenditure then with sufficient warning and legal costs involved it may be possible to motivate a temporary change to your repayment plan. Though you should expect to get push back from your credit providers (who want money every month) this can be arranged if you allow enough time to prepare everything. The Magistrate may not agree with the request and there is no guarantee but this is something you should discuss in detail with your Debt Counsellor weeks in advance. Realize too that there will be costs and time consequences.
Amending a court order (even temporarily) is a lot of work and is not always the correct option. Your Debt Counsellor may rather talk to you about making life style changes like selling assets or renting out part of your home rather than mess with the existing court order.
The Number One Rule of Debt Review
Every Debt Counsellor will tell you the same thing if you ask them what the most important rule of debt review is: never miss a payment!
This means that even though the cost of living is going up and your salary may not you need to ensure you make your payments. Become the best shopper you can, live smart, try to earn more and very importantly stick well within your budget each month. This will help you stay in the process even when the cost of living increases over time.