Your money with Kochie: debt tips

Q. I am in debt to the tune of $30,000 and own nothing of any value. I have just made some very bad choices. I’ve been offered a solution by a debt consolidation company that sounds OK to me, but is it a safe thing to do or another bad choice?
Cheryl, via email.

A. It sounds like you’re being offered some kind of debt agreement. This
is just one step up from bankruptcy and not something to enter into lightly.

Under a debt agreement your creditors (the companies you owe) agree to accept a smaller amount or a repayment plan and you avoid going bankrupt. It’s administered by a third party and ends when you’ve paid off your debts. It will remain a black mark on your credit report for seven years and may prevent
you from getting finance for everything from a mobile phone to a mortgage.

Have a go at your own debt-reduction plan first. Hide your credit cards, plan a budget and work out how much you can pay off your debts every month. If you’re not making much of a dent in them you have to increase your income. Get a second or third job in the evenings or on the weekend until your debts are cleared.

Ask for help if you need it. Present your debt reduction plan to your creditors and explain your situation. They’ll be more lenient if they know you’re trying to tackle the problem. Ask if you can pay less interest or reduce or postpone some repayments while you get your finances under control.

If you’re unable to keep up with your repayments or are even adding to your debts then consider a consolidated loan. This is where you combine all your debts into one loan and make one repayment a month.

Try to pay more than your minimum repayment each month to reduce the risk of paying more interest over the life of the loan. Always get independent financial advice before proceeding with debt consolidation.