The ins-and-outs of Debt Consolidation Loans

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This is how debt consolidation works

It can feel extremely overwhelming when you have accepted too many loans as well as goods and services on credit from multiple institutions, leaving you with very little each month to take care of your living expenses.

This is where debt consolidation loans will be sure to help you free up some of your income and gain back control over your finances again. This will also remove the feeling of anxiousness about your financials.

The affordable solution

Debt consolidation loans can help you by creating an affordable solution for you to clear off all your unsecured debts like personal loans, credit cards, store cards, and other forms of debt.

How? This happens by you getting a loan to consolidate all your current outstanding debt into one loan. The great part is that this loan will then be the only loan you’ll need to repay at a much lower amount as you won’t have to pay interest and admin fees on multiple loans any longer.

For optimal relief, a loan that will cover your total outstanding debt is ideal.

Consolidating your debt is a great debt solution designed to help you keep abreast of your credit repayments and avoid the temptation to fall behind due to prioritizing your living expenses. Combining your debts into a more manageable loan will free up some of your income and it will also allow you to hold on to your assets with ease.

Different product solutions

Debt consolidation products are offered by most banks and other lenders. It is wise to compare your options in order for you to get the best possible deal. More often than not smaller lenders that normally do not do business in the traditional way can likely offer you better rates. At the end of the day, you want to reduce your monthly repayment amount so that you can enjoy a better standard of living. So, it is crucial to find the most affordable option to replace your current debts.

Easier, more manageable debt

Besides the fact that you will be saving on monthly interest fees, the harassing phone calls and emails from creditors will also be removed from your stress list. A debt consolidation loan can reduce the risk of you falling into a trap where you face repossession of your assets because you won’t have too many unsecured debts taking up space in your budget anymore.

To clarify, this means that you will pay less come month-end, using only one payment for your debt instead of making multiple different payments to all your different credit lenders.

These loans are usually granted for up to an amount of R300,000 in South Africa and can typically be repaid over a long period of up to 5 years. Finding out exactly how much you owe each of your creditors is important when you apply for debt consolidation. It is not always possible to combine all your debt, but it is most definitely the better option if it is possible for you. 

Weigh up debt consolidation products and debt solution companies before applying. This will help you find a loan that fits best with your lifestyle.

Is a debt consolidation loan the right choice?

Your monthly payments will be less than you have been paying in the past for your credit, however, it will be for a slightly longer period than you previously committed to. The interest rate will be far more affordable and as a result, will enable you to allocate more of your monthly income towards living expenses, entertainment, and things that really matters to you.

Something that you should keep in mind is that this option might not always be the right one for your specific financial situation. So, it is always important for you to determine if you really need to opt for such a loan, or if you will be able to manage without it. Remember that even though your monthly interest and repayments will be reduced, you will be repaying your debt over a longer-term which can result in you paying more for your debt in the end.

Reduced interest rates

Paying off all your high-interest debts with a low-interest loan has helped millions of people to get out of their debt with less strain. Keep in mind that a debt consolidation loan is just like any other loan when it comes to approval and the interest rate you will receive is based on a few factors. Your interest rate on this loan will be determined by your credit score, affordability, repayment history, and needs, but most importantly the lender you choose can have a major impact on the loan deal you get. For instance, getting a loan from a company that is more lenient with their loans might offer you the opportunity of getting a better solution. Just like a strong credit score will most likely help you to get an affordable interest rate without a problem. So, depending on your circumstances and profile you can ultimately access lower monthly repayments as well as a reduced total amount over the entire term of your loan.

Before signing on the dotted line for a debt consolidation plan make sure that you read the T&C’s. In some cases, the interest rate that you begin with may change to being more after a set period and thus making it less affordable than when you started.

What will you need to Consolidate?

It is important that when you apply for a debt consolidation loan that you make sure that you do currently have a good enough credit score to get a loan to cover your outstanding debt. You cannot be under debt review, because you will find it difficult to find a legitimate lender to give you a loan.

You must also make sure that you will be able to commit to the payments and ensure that you won’t be overstretched with your credit. Having a stable and regular income is also often a minimum requirement.

Is it worth it?

Depending on how you feel about the long-term repayment and the fact that you will possibly pay more in the long run than if you had stuck to the original means of repayments, it is still worth it.

The reason is, if you had to stick to repaying all your credit lenders individually you would still experience an overwhelming, sleep-depriving, stressful situation, whereas this is a solution to offer you immediate relief.

Draw up a budget before making any decisions and see what you can afford when agreeing to a monthly payment on your loan.

Debt relief

Debt counselling will allow you to experience the freeing up of your cash flow and will also allow you to get back on your feet after getting into a rough spot of being overextended.

So, if you have reached the point of feeling over-indebted and found yourself wondering what the next step would be to get yourself back in control of your finances as opposed to being stuck on the back foot, then a debt consolidation loan would be a helpful and affordable solution for you and your current financial needs.

The most important thing about taking out a loan for your debts is that you cannot return to your old way of spending. You will need to change how you spend money and not allow yourself to get further into debt.

Popular & reliable direct lenders offering

  1. FNB Consolidation loan

    FNB

    • Loans up to R150,000
    • Term up to 60 months
    • Interest from 10.5%
  2. ABSA Consolidation loan

    ABSA

    • Loans up to R350,000
    • Term up to 84 months
    • Interest from 17.5%
  3. Debt Busters Consolidation loan

    Debt Busters

    • Asset protection
    • Lower fees
    • Affordable repayment
  4. Capitec Consolidation loan

    Capitec

    • Get rid of debt
    • Lower rates
    • Affordable repayments