More and more people are finding themselves in a position where their expenses substantially exceed their income. If you find you are unable to meet your monthly payments and you stand in danger of losing your home and your possessions there are options available to you for paying your creditors and eventually freeing yourself from debt.

All of the following options involve debt consolidation, the choice will be determined by the your individual circumstances:

Debt consolidation loan

One way to consolidate your debts is by taking at a loan which will enable you to cover your debts and reduce your commitments to one monthly payment.. This generally results in a much lower interest rate and so a lower monthly payment. However, it is important to shop around and negotiate the lowest rate possible. Beware of loan companies which advertise a good rate for a limited period of time unless you are certain you can pay off the loan during that period.

Be careful, too, of extending the loan term for too long a period. Although this will initially result in lower payments, over the term of the loan you could end up paying a great deal more interest. In other words, if you can secure a loan at a low interest rate and pay off your debt in a reasonable length of time, a debt consolidation loan is a good option.

Administration Order

If you have a poor credit rating and do not own your own home you might find it difficult to obtain a debt consolidation loan. In this case, if you have a number of debts totaling under R50000 and are not able to meet all the payments, you may apply for an administration order at the Magistrate’s Court.

An administration order works in the following way: An administrator is appointed by the court, the debtor pays an agreed portion of his wages to the administrator each month and these are distributed to the creditors on a proportionate basis. Not all debts can be covered by an administration order – your bond repayments, rates and utilities will have to be paid separately out of the portion of your income made available for your monthly expenses.

The advantages of an administration order are that eventually your debts are paid in full, in the interim you have enough money for your day to day living expenses, and your possessions cannot be repossessed by irate creditors. The disadvantage is that you are precluded from opening any accounts while the administration order is in place and the order will remain on your financial records for 5 years after the debts have been paid.

Debt arbitration

There is one other option for debt consolidation which can be used if you are in severe financial trouble and unable to deal with your debts using the above two methods. Debt arbitration is a legal process which enables the debtor to renegotiate the amount to be paid, perhaps by having interest and collection fees waived, in order to make the debt more manageable and to avoid legal action being taken. This is generally carried out with the assistance of and on the advice of a debt counselor or debt settlement lawyer.

Although the latter two options for debt consolidation in particular might have an initial negative impact on your credit rating, they beat filing for bankruptcy, which could be the only other alternative, hands down, and provide you with a means of clearing your debts and starting again with a clean financial slate.