Debt Management

What is Debt Management?

Debt management refers to the strategies and processes that you can use to repay your debts efficiently. It deals with questions such as:

1. Deciding which debts to prioritise in your repayments;
2. Balancing your debt payments with your household living expenses;
3. Looking for opportunities to restructure your debts to reduce your monthly payments; and
4. Looking for ways to reduce your interest rates, so that you pay less overall.

The first step to effective debt management is to understand your financial situation, through a debt health check. Once you know the state of your finances and have analysed your key risks, you can start looking for opportunities to improve your situation. This is where a Debt Management Plan (DMP) comes into play, which we discuss in the next section.

Ultimately, debt management is about creating financial stability — and ultimately financial freedom — for you and your family.

What is a Debt Management Plan (DMP)?

Once you’ve undertaken a debt health check and you understand your financial situation, it’s time to formulate a game plan to repay your debts efficiently. A Debt Management Plan (DMP) helps you reduce or eliminate your debt over time, while managing your financial resources responsibly. Key aspects of a Debt Management Plan include:

1. Creating an inventory of all your debt, to draw up a comprehensive listing of all your debts. This would include amounts owed, interest rates, and minimum monthly payments.
2. Creating a realistic budget that prioritises essential expenses over luxury expenses and allocates funds for debt repayment.
3. Adjusting your living expenses by looking at your spending habits and setting boundaries for yourself and your dependents. It’s very hard to forego luxury expenses, especially if you and your family are used to life at a certain level, but committing to efficiently repaying your debt is not only a responsible choice, but also one of the best investments you can make in your and your family’s future.
4. Renegotiating your debts with your creditors to obtain interest rate reductions, fee waivers for late payment penalties, and more manageable payment terms, so you can repay your debt over a longer period.
5. Consolidating your debt in a single monthly payment, to simplify the process of repaying your debt.
6. Support systems to keep you on track with your plan. Without proactively thinking of a good process for when things go wrong, and having a trusted advisor to turn to, sticking to your plan will prove challenging over time.
7. The reevaluation and adjustment of your plan as needed, when your financial situation changes.

The Benefits of Efficient Debt Management Through a Debt Management Plan

Having a solid plan will help you understand where you are headed and give you a clear path to a debt-free life. Reducing your spending and learning healthier money habits will help you take control of your finances. And successfully renegotiating or consolidating your debt can shorten the time that you will remain in debt.

But here’s the problem. Doing all of this on your own is hard. As with many issues we encounter in life, it helps tremendously to get an outsider’s perspective on our situation, preferably an expert in the field.

Debt Sage’s NCR-registered counsellors are experts in debt management and ready to help you formulate your own Debt Management Plan. If you enter debt review with them, they will also negotiate with your creditors on your behalf, leveraging their industry experience and connections, and help you to consolidate your debt and reduce your interest rates. Depending on your situation, they can also help you protect your assets from your credit providers. You’ll be able to make one reduced monthly payment to cover all your debt. And your Debt Sage counsellor will be with you every step of the way, providing you with action plans and tips to keep you on track.

Book a free consultation with our experts to draw up your Debt Management Plan.

When Should I Apply for Debt Management and Draw up a Debt Management Plan?

If you have multiple debt accounts, you are feeling stressed about and overwhelmed by your debt, and if you’re struggling to keep up with your monthly repayments, it’s never too early to consider a Debt Management Plan. People who let their debts build up before seeking help often find that:

1. Their credit cards are maxed out;
2. Lenders don’t want to lend them any more money;
3. Things have spiralled out of control; and
4. It takes much longer to pay back what they owe than what they expect.

Which Debts can and can’t I Pay Off with a Debt Management Plan?

Under debt review, the following types of debt can be paid off with a Debt Management Plan:

• overdrafts;
• personal loans;
• home loans;
• building/renovation loans;
• credit cards;
• store card debts; and
• payday loans.

You can’t use a Debt Management Plan to pay the following debts:

• court fines;
• annual TV Licence;
• electricity bills;
• child support and maintenance;
• SARS income tax debt; and
• rent.

How to Choose a Debt Management Consultant

When choosing someone to help you analyse your situation and draw up a Debt Management Plan, you should make sure that:

1. the debt consultant is licensed by the National Credit Regulator (NCR);
2. the debt consultant discusses all the possible options available to you to deal with your debt problem;
3. you’re told clearly at the start how much it will cost to arrange the plan and how you will pay that cost;
4. you understand what will happen if you withdraw from the Debt Management Plan.

What to Look Out for in Your Debt Management Plan

Before starting a Debt Management Plan, the consultant should make clear to you the terms and conditions, including:

• How much money you’ll be expected to pay each month and for how long;
• What costs are attached to the plan;
• The reasons the debt consultant might stop running the plan for you, for example, if you don’t make the required monthly payments; and
• What happens after you complete the plan.