Debt Consolidation

Simplify your financial life.

Debt consolidation simplifies your financial life by replacing multiple debt repayments with a single payment. Debt consolidation involves taking out a single, new loan, at the lowest possible interest, to pay off multiple smaller debts. In some circumstances, this can save you money.

How do people end up so indebted?

In today’s economy, the financial pressures on households are enormous.

Marketing on TV, online, and in newspapers bombard us with all the great new items that we can purchase. To be able to buy all these items, we are told to get credit. It can be alluring: you can get everything you’ve ever wanted, seemingly at little cost — for now. Slowly, however, the debt is mounting and the bill is coming. Are these credit items familiar to you?

  1. Monthly groceries
  2. Clothing accounts
  3. Car payments
  4. Cell phone contracts
  5. Furniture
  6. Household appliances
  7. Petrol

If so, you’re not alone. Twelve million South Africans are considered to be over-indebted. It may feel isolating to be in a situation where the debt is starting to overwhelm you, but there is hope. A debt consolidation loan could be one way to address this. The other way is through debt counselling.

When is a debt consolidation plan a good idea?

Those who do not fully understand the intricacies of the system often state that taking out another loan to pay off previous loans doesn’t make sense. However, in some circumstances, it definitely can. If multiple creditors constantly harass you by phone (an extremely unpleasant experience) and you want the calls to end, then a debt consolidation loan can be a quick fix. If it’s planned out very carefully, it can also be the most cost-effective option.

It’s common practice in South Africa for creditors to sell your debt to other companies, and this is typically where payment notifications turn into harassment. Although it’s illegal, some of these debt collection companies will add nonsensical bills to your owed total – charging you every time that they have to make a call, whether they reach you or not. If all of this makes you feel like you’ve lost control, that these collection people are mishandling your account and costing you more money, a debt consolidation loan is one option.

A more structured approach is debt counselling.

What kind of consolidation loans are there?

Home Loan

Many financial experts will tell you to use your home loan (should you have one) due to the low interest attributed to it. Depending on your credit profile, your home loan rate is likely close to the current prime rate. This is typically much lower than the interest rate you’d score for short term loans or retail store cards. Short term loans can have anything from a 21% to a 32% interest rate, which is why a debt consolidation loan on a much lower interest rate can work.

Personal Loan

The interest rate you’ll get on this type of loan really depends on your credit score, but most banks will offer this option if asked about debt consolidation loans for non-homeowners. Due to the National Credit Regulator cracking down on reckless lending by banks, most will not even list consolidation as a service or product on offer. With proper planning and expert advice, the personal loan is a good way to proceed with a debt displacement strategy.

Secured Loan

This can be an excellent way to get low interest loans for bad credit. You’re essentially securing the loan by attaching an asset to it, greatly reducing the risk to the lender thereby reducing your interest rate. You can attach big ticket items such as your house or car, but be certain that you’d be able to pay that loan back or those assets can be repossessed.

Consolidation WITHOUT another loan?

Debt counselling is a different way to enjoy the benefit of consolidating all your debts into one, without the need to take out one bigger loan.

Through debt counselling — also called debt review — our accredited debt counsellor will negotiate lower interest rates and fees with credit providers on your behalf, and arrange a restructured, combined monthly repayment amount. This will allow you to free up cash flow, which can be allocated to other living expenses.