Debt Management
info@debtmanagement.co.za
Mon - Fri : 8 AM - 8 PM
- Cape Town, SA
- info@debtmanagement.co.za
- Mon - Fri : 8 AM - 8 PM
Debt Consolidation
What is Debt Consolidation?
Debt consolidation is a financial solution designed to put multiple debt repayments into one and, typically save you money.
This basically involves taking out a single, new loan, at the lowest possible interest, to pay off multiple smaller debts.
Some of the most common questions people ask those in the financial sector are:
“When are debt consolidation loans a good solution?”
“How did I end up in this financial situation?”
“How common are my financial problems?”
“Is this just happening to me?”
It’s certainly not only happening to you
How do people end up so indebted?
The financial pressures of today’s economy continue to mount.
Marketing has us exposed to an increasing amount of items to purchase and credit methods which will allow us to do so. In order to acquire all of the goods and services we’re told that we need to have, we’ve become a credit based society.
Now you can have everything you’ve ever wanted at, seemingly, little cost – but the debt is mounting and the bill is coming. Here are some of the things which may have been purchased on credit to push you into a tight spot:
Monthly groceries
Clothing accounts
Car payments
Cell Phone contracts
Furniture
Household appliances
Petrol
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 – but it certainly can.
If you have multiple creditors harassing you by phone (this process can be extremely unpleasant) and you want the calls to end, then a debt consolidation loan is the fastest solution.
If it’s planned out very carefully, it can also be the most cost effective option.
It’s common practice 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 charges etc., to your owed total – charging you every time that they have to make a call, whether they reach you or not.
If 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.
What kind of consolidation loans are there?
Home Loans:
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 probably close to the current prime rate.
This is typically much lower than the interest rate you’d obtain for short term loans or retail store cards.
Short term loans can run anything from a 20%+ which is why a debt consolidation loan on a much lower interest rate can work.
Personal Loans:
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. 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 must be certain that you’d be able to pay that loan back or those assets can be repossessed.
Personal Loans:
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. 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 must be certain that you’d be able to pay that loan back or those assets can be repossessed.
One final tip and probably the most Important
Once you’ve got your loan and paid back all the other debts that you had, DO NOT be tempted into using the credit/store cards again or applying for more credit elsewhere.
WHY? As then you’ll not only have your loan to pay but all the debt you just cleared putting you in an even worse situation than when you took the loan!