A South African consumer approached DebtBusters with the following question:
I would like to obtain a debt consolidation loan. I have had two bad years where I have made several bad financial decisions. I have three loans, from different credit providers, and my credit card account is in arrears.
What I would like to do, is combine all my debt into one amount and only pay that one amount off on a monthly basis. However, if this is not a possibility, what other alternative solutions do you propose?
DebtBusters advises the following:
Your situation is what one would refer to as the classic “debt cycle”, whereby individuals borrow too much credit that they can no longer afford to pay off and therefore end up taking out additional larger loans in order to pay off their current accrued debt.
The problem is, eventually you will no longer be able to meet your debt repayments as your debt will become unaffordable. However, you need to remember that you are not alone and many South African consumers are in the same position as you right now.
A debt consolidation loan, whereby you borrow one large amount of money in order to pay off all your smaller debts would be a solution that can assist you with becoming debt free. Basically, you consolidate your debt into one amount and thus, no longer have to deal with the hassle of making multiple payments. But, due to the spiralling debt crisis in South Africa, the banks have turned down the taps on unsecured lending, making it more difficult to get a debt consolidation loan.
South African banks are only likely to grant a consumer a debt consolidation loan if they are able to comfortably afford their debt repayments. Debt consolidation loans are only paid out to personal loans and not credit card accounts, and often they are only paid to one credit provider, which hinders the process of settling your debt. Debt consolidation loans were introduced primarily for convenience.
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Its main aim is to reduce the hassle of paying multiple credit providers and not a solution to help reduce debt instalments and settling debt faster.
In your particular situation, it would not be possible to obtain a debt consolidation loan, due to your current affordability status, as well as due to the fact that a consolidation loan does not cover credit card debts.
However DebtBusters offers an alternative debt solution similar to debt consolidation, called debt counselling.
Debt counselling is a debt solution where a debt counsellor will restructure your debts, by negotiating interest rates with your credit providers. Your monthly debt repayments will be reduced as interest rates will be renegotiated to a lower amount.
Debt counselling consolidates all your debt repayments in to one amount, without having to take out a loan and covers credit card repayments. Thus, like debt consolidation, with debt counselling you only have to make one monthly payment to a Payment Distribution Agency.
In order to find out more information about debt counselling contact DebtBusters on 0869990606 or visit the DebtBusters Website at www.debtbusters.co.za. As an alternative to debt consolidation, watch DebtBusters animation explaining the debt counselling process