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Before The National Credit Act came into effect in 2007, consumers faced with immense debts often turned to sequestration to alleviate their debts. Debt counselling became a profession once the act came into effect, and consumers now have a choice between sequestration and debt counselling. Although sequestration is still an option available to consumers, it is vital that consumers understand just how drastic it is. Debt counselling is a far better option for the following reasons:
- Debt counselling allows a consumer to keep their assets, whereas sequestration entails liquidating assets to pay off creditors.
- Debt counselling is more invested in the consumer and will protect them from creditors while they are under debt review. Sequestration does not afford such protection, although it does afford the consumer the freedom to spend their salary as they see fit.
- Sequestration prevents the consumer from applying for credit for a longer period than debt counselling does.
- Lastly sequestration is an administrative and financial headache, whereas debt counselling allows the consumer to place their debt management in capable hands and find some relief.
Consumers often have a negative impression of debt counselling, associating it with blacklisting and a bad credit record. They would rather choose remedies that are familiar, such as sequestration, not understanding the full impact thereof. Debt counselling may be a relatively new field in debt management but it has helped nearly 300 000 consumers in South Africa retain their assets, clear their debts and start anew.
Article written by: Andrea van Tonder 02-2013