If you find yourself overwhelmed by debt you need to take action quickly….
The problem doesn’t solve itself and will get worse faster than you wish.

The action plan to get out of debt and back on your feet is much easier to deal with than waiting for the inevitable consequences of ignoring the problem.

Here are your options….

Go it alone
If you want to avoid debt counselling, contact your creditors personally and bring your situation to their attention. The lender would probably be better off arranging a compromise with the payment arrangements extending the debt over a longer period and reducing the repayments. In some instances arrangements can be made to service the interest only for a period. What ever you do do not apply for more credit!

Contact a debt counsellor                                                                                          They are regulated in compliance withe the National Credit Act and this is the process to follow:

Step 1
You complete an application form and providing details of all your Credit Providers.
(Consultations are usually done telephonically and by e-mail, but can also be done in person.)

Step 2
The debt counsellor will determine whether you are over-indebted by establishing if your monthly expenses exceed your monthly income.
(You have to be over-indebted to qualify for Debt Review.)

Step 3
If you are over-indebted, the debt counsellor will inform all your Credit Providers and the Credit Bureaus that you are under Debt Review. Your Credit Providers will also be requested to provide a Certificate of Balance (COB) in respect of your accounts.

(You will immediately start to pay a single provisional reduced monthly installment in respect of all your Credit Providers which will be affordable to you. During the first 60 working days, legal action may not be taken against you in respect of the debts that are under review.)

Step 4
After receiving all the COB’s, the debt counsellor will restructure your payment plan and negotiate with your Credit Providers where necessary. After negotiations with your Credit Providers, your new restructured payment plan will be sent to all your Credit Providers and this payment plan will take effect.

(Your restructured payment plan will reduce your monthly debt repayments to an affordable amount, leaving you with sufficient money for your living expenses.)

Step 5
The debt counsellor will instruct a specialist attorney to apply to the court to make your restructured payment plan a court order. You will not have to appear in court yourself, as your Debt Counsellor will be the applicant in the matter.

(The process will now be completed and you must ensure that your monthly payments are made timeously in order to prevent Credit Providers from taking action against you.)

The counsellor is entitled to 5% of the structured repayments to a maximum of R450.

Retirement annuity contributions                                                                              

You can deduct up to 27,5% of your taxable earnings on contributions to retirement funding. So if you have a pension fund and you contribute 15% towards it you can invest an up to 12,5% more into a retirement annuity. This can be done with a lump sum adding it to your existing retirement annuity. It has to be invested before the 28th of February to qualify for a deduction in the 2021 tax year. The benefit is a tax deduction on your premium at your marginal tax rate. So if you are paying tax at a rate of say 40% then you effectively get 40 cents back for every rand you invest in a retirement annuity.

Tax free savings account                                                                                            

You should consider the opportunity of investing a lump sum into a tax-free savings account before the tax year-end. You are currently allowed R36 000 per annum. So you can top up to this amount before the end of February taking full advantage of the allowance and then be in a position to invest more in the next tax year from March onwards. The main advantage of this investment is that your funds are not taxed which substantially improves the performance over time.

Capital gains tax                                                                                                              

If you are disposing of any investments you could sell some in  February using your R40 000 exclusion off the gain in this tax year then sell again in March taking up your R40 000 exclusion for the new tax year.

Donation tax                                                                                                                     

If you are considering donating assets up to R200 000 to someone other than your spouse you should split the donation between February and March. This way you will take full advantage of the R100 000 per annum allowed per taxpayer for 2021 and then again in the 2022 tax year.

Planning opportunities exist in the month of February for the tax savvy. Work with the various tax breaks and take full advantage while you can.