It’s a whole lot easier getting into debt than getting out of it and staying out. We’ve put together some key points to help in understanding the debt trap.
The person who owes money is the debtor. The creditor is the person or company who is owed. The creditor may employ a debt collection agency to have the money repaid or sell the debt to the debt collection agency, so the debt collection agency then becomes the creditor.
If your debt is with a debt collection agency but you dispute the debt or any amount of it, it is important to advise the agency in writing as soon as possible.
Depending on the amount of the debt you owe, the creditor can pursue you through the disputes tribunal, the District Court, and even the High Court (usually if the debt is more than $200,000).
Creditors may also repossess and sell your property but only if you put it up as security and agreed to the credit contract allowing this. If you arranged a guarantor for the loan, the creditor can pursue them to have the debt repaid.
The worst thing you can do with debt is ignore it because it won’t go away – but it will attract additional costs and interest. Debt collection agencies can charge fees over and above the debt, however these must be reasonable and you must have been advised of those fees at the time of making the contract. Interest may also accrue depending on the terms of the contract.
If you find yourself in debt, get some advice on whether the debt is legally enforceable, get some budget advice, and see if you can negotiate repayments with the creditor.