Quick guide to consolidating your debt for good

One cannot argue the benefits of debt consolidation; it offers you a higher disposable income and it simplifies your monthly debt repayments, as you only have one lender to repay.

What’s more, is that it minimises your chances of defaulting on any debt repayments.

As a general guideline, it is recommended that you take out a loan for your debt if you are unable to manage your disposable income due to high debt costs. Additionally, should you owe more in debt than half of your disposable income or if you are unable to repay your debt within five years, a debt consolidation loan might be the best option for you.

All you need to know is how to consolidate debt with the aim of reaching financial freedom.

So, how do you consolidate your debt, for good? By following a simple guide on how to get such a loan approved, you can start the process of becoming debt-free while improving your immediate financial situation.

Follow our guide to help you take the right steps to consolidate your debt for good.

How to consolidate your debt

Knowing how to consolidate is important for two reasons.

Firstly, it enables you to know exactly what needs to be done to get rid of your debt.

And secondly, it helps you to find the best possible solution for your current debt status. One of the first steps you need is to list all your debt accounts and repayments thereof. This will give you an overall idea of how much you would need to borrow but also what your current expenditure is on your debt.

Listing of debt is a requirement when applying for a debt consolidation loan, in order for your lender to know, which debt amounts would need to be paid. The maximum amount you will normally be able to borrow would be R300,000. Some lenders will pay the loan amount directly to you and you will then have the opportunity to pay off all your creditors yourself. Other lenders have options where they can do this for you to ensure you are debt-free. Not only will you have professionals handling your financial affairs but it can save you time as well.

List your debt

Start by listing each of the debts you wish to consolidate. It is important to make sure you do not overlook any of your accounts. The aim is to cover all your debt so that you don’t have to pay any more than your one, convenient repayment.

List all current debt repayments

Planning is key when you are planning to consolidate your debt. List the monthly payments and interest rates of each one of your debts. This will give you a good idea of how much you are spending on all your debt repayments. You could also work out the estimated interest you would be paying back on all your debt repayments in total. This will give you an estimate on how much you will be saving on interest, once you have secured your new loan.

Credit score & credit report

Now that you have listed your different debt lenders and repayments, you need to know all about your credit score and credit report.

It will not only be needed when you apply for a loan for your debt but it can also help you to strategise your money a little better. Applying for a debt consolidation loan is different from any other loan type, in that there are a few more requirements or documentation that would need to be submitted.

But if you follow all the guidelines and ensure that you are fully prepared, there is no reason why you should not be able to enjoy the benefits of this kind of loan.

Credit score

A credit score determines your creditworthiness and it is a rating between 330 and 850. It has the purpose of indicating to the lender whether you default on payments, have a good or bad credit history, and if you are a high or low-risk borrower.

Some lenders will reject loan applications if the applicants have poor credit ratings. However, there are lenders that are willing to approve loan applications even if you have a bad credit score. Often, a bad credit loan has higher interest rates than a standard loan for debt, due to the risk involved.

Either way, it is best that you know what your credit score is. You might choose to improve your score before applying for a loan. If not, you will have a fairly good idea of whether you will enjoy loan approval and a good interest rate.

Credit report

Furthermore, you could apply to receive a full credit report. This will allow you to know exactly what debt you have and to whom it is payable. This is also handy when applying for your debt consolidation loan. The lender will make use of the credit report to cover all your debt, once you have been approved.

What can you afford?

Debt consolidation lenders are there to help you every step of the way.

But it is important for you to not only be prepared as mentioned but also realistic and upfront about your current financial repayment abilities.

Create a budget

Budgeting is important in each and every financial situation. By budgeting, you will be able to know exactly how much you are able to afford. When you apply for a loan, you can relay all the information you have to the lender, which will in turn only benefit you.

Many lenders will favour applicants who are able to present a budget as it shows that you have prepared and that you are serious about becoming debt-free.

Your budget should include all your daily, weekly, and monthly expenses. Ensure that you do not overlook any expenses as this will prevent you from benefiting the way you are supposed to.

Loan repayment amount

After creating a budget, you should now have a fairly good idea of what repayment amount you can afford on a debt consolidation loan.

Remember, the aim of this loan is to improve your immediate financial situation and to create a higher disposable income. Not to mention the ultimate goal of becoming debt-free.

Find the perfect debt consolidation lender

Now, you have done most of the prepping for your loan application.

Next is the important step of finding the best lender to suit your needs and budget.

The loan industry offers an abundance of lenders that specialises in loans for debt, who are all ready to assist you. However, as with everything, there are standard loan providers and then there are the top debt consolidation lenders that will offer you the very best service at competitive interest rates and fees.

This is what you should look out for when choosing your preferred lender:

Convenience

Some lenders offer handy online applications whereas others require a visit to their offices. Depending on what you prefer; it will form part of your decision on the best lender for you.

Lenders offer a variety of ways for you to apply. You should not settle for a lender that does not offer your preferred method of communication and loan application. As mentioned before, there is a lender out there that will tick all your ‘preferred’ boxes. Leaving you with no reason to settle for second best.

Interest rates

Many loan lenders offer very competitive interest rates due to the number of lenders available. Each lender attempts to offer a better loan service. You should be able to find a lender that offers you the very best interest rate in the industry.

More often than not, loans for debt have fixed interest rates but this is something you would need to discuss with your lender of choice.

Fees

These loans are a service and thus lenders have to add establishment fees to ensure that they too are running a profitable business.

As lenders all try to offer competitive fees, you simply need to ensure that you find a lender with the best fees in the industry.

Repayment terms

Perhaps you wish to pay your loan back over a set, agreed repayment period. However, perhaps you would like more flexibility in terms of repaying more than your standard instalment.

This is another feature that varies greatly from lender to lender. It requires you to make sure that you find a lender that does not only offer a competitive interest rate but also lower establishment fees than its competitors.

Additional services

As we have clearly established loan lenders try to offer only the very best deals. Why? To ensure that you choose them as your preferred lender and that you are satisfied with your choice. It is simply good for business.

You will therefore find that many lenders offer additional services such as debt management. This is without a doubt a sound idea when you are aiming to reach financial freedom, and of course, your ultimate goal, to be debt-free.