Using your home in particular to sort out your debts is a viable option for people who simply cannot handle the hiking food, petrol and goods prices. With all loans there are certain risks that have to be handled carefully especially when something as important as your property is being used as collateral. 

Secured and Unsecured Debt Consolidation Loans

With a secured debt consolidation loan your property ensures the company that you will pay them back – or they can take the money from your house. Often this means selling your property and losing your home.

That is why a secured loan is so risky. You must be prepared to pay the debt consolidation firm every month so that you will never have to force them to call in the collateral you put down on the contract.

This kind of security does prove very handy. Because your property ensures repayment, you are able to take out large loans from them at very low interest rates. This particular kind of debt consolidation is most often used for paying off credit cards. With secured loans it is best to pay back the amount owed as soon as possible.    

Alternatively, if you would prefer an unsecured loan with no pledged assets as collateral then that can also be arranged. In South Africa you are able to use your home loan for debt consolidation. What this means is that you are essentially able to increase your bond, adding on a consolidation amount, to pay off other debts.

This often requires only one payment a month at low interest rates, and one additional account fee. By doing this you are making all of your short term debt, long term – and therefore pay back less each month.

I Have Been Blacklisted What Now?

If you have been blacklisted by the South African credit bureaus and are unable to get any kind of credit, then perhaps debt consolidation is for you. You can then proceed to contact a debt consolidation company and apply for a secured loan.

Even though you have a mark against your credit rating the consolidation company will provide you with a loan when banks won’t, as long as you use your property as security against it.

What this means is that your home will once again be held as collateral for such a loan. However, the debt consolidation company will then pay up all of your accounts and within six months to a year your credit rating will be perfect again.

Why Put My House on The Line?

If you are in serious debt and have nowhere to turn then debt consolidation is the best thing that you can do for yourself. A secured loan will allow you to get more money for less interest. In the long run, if you consistently pay your one account, it will solve all of your credit and debt problems.

Using your largest fixed asset to consolidate your loans might sound like a risky business, but all in all it’s a wise long term decision and will contribute to your financial health in the future.

Once your consolidation loan is repaid you will finally be debt free. In the meantime your payments will decrease and you can enjoy the peace of mind that comes with efficient finance management. As long as you stick to your monthly payments the chances of losing your property are slim. Be sure to find a reputable debt consolidation and mortgage refinance company to professionally handle your debts.

The result is that all of your debt is merged into a new loan, ensuring that you are only responsible for a single payment as opposed to several payments into numerous accounts. Debt consolidation simplifies your finances, gives you a lower interest rate on your combined debt and procures much needed time in the case of imminent bankruptcy.

Of course, there are risks associated with taking out any loan, especially when you’re using additional debt to settle your current debt. These risks are easily avoided if you can recognize them and address them accordingly.

The Risks

• Your Credit Rating

After taking out a debt consolidation loan, your credit rating will initially take a hit. Taking out another loan essentially eradicates all progress that you may have made towards paying off your current debts.

However, the reality is that nothing will hurt your credit rating as much as bankruptcy. While the initial blow to your credit rating may seem self-defeating, the long-term disadvantages of an entirely tarnished credit rating will be even worse.

On the flip side, if you recover from the initial blow and get on top of your finances, you will ultimately end up with a better credit rating in the end.

• Impulsive Spending

A debt consolidation loan will allow you to settle several accounts. However, beware of the mindset that would make you believe that your debt has disappeared. In fact, your debt has been consolidated into a new loan.

When you see that your account balances are R0, you should not take it as a green light to start accumulating debt again. If you continue to spend money that you don’t have, you will only undo the benefits of a debt consolidation loan. Accumulating more debt after you’ve just consolidated your debt is a dangerous move, and one that is likely to leave you with a worse problem than you had in the first place.

• Your Assets Being Repossessed

If you choose to take out a secured loan, you need to be aware of the risks involved with regards to your assets. Your assets are offered as collateral in the case of a secured loan. If you default on payments, your house or your car could be repossessed for immediate repayment.

Secured loans are a good option if you’re looking for a bigger loan and a lower interest rate, but the risk to your property should be carefully considered.

• More Long-Term Interest

Some consolidation loans offer you lower monthly repayments over a long-term period. In this case, it is important that you work out how much interest you will pay over the full loan period. Sometimes the interest is a lot higher than you thought it would be, and the illusion of low monthly repayments will only ensure that you pay more in the long-run.

• Dishonest Lending Institutions

There are many creditable lending establishments that offer debt consolidation loans. However, there are also a few debt consolidation scams in circulation. It is of the utmost importance that you carefully consider which lending establishment you will use to consolidate you debt. Do a background check if you are unsure, but do not fall prey to the dishonest practices of a few unethical businesses. 

Summary

In South Africa, debt consolidation has become an increasingly common method of addressing insurmountable debt. It has proven very effective in helping people to regain control over their finances.

As is the case with any loan, a debt consolidation loan has certain risks attached. It is important that you weigh these up before you decide to consolidate your debt.

Reduced Interest Rate

If you have accumulated a number of separate debts over time and have not been able to pay off the full monthly installments to your creditors, then you are also responsible for finance charges. These can range anywhere in the region of 6%, to higher instances of around 20%, depending on how much you owe.

Another situation that you might be in is that you have a build-up of interest-free debt that has a final deadline for full payment. If this deadline passes you by, either because you forgot about it or you were unable to meet it financially, you could find yourself liable for considerable interest charges dating back many months or years, to the date that the loan was first issued.

These kinds of high interest rates can be substantially reduced if you take out a debt consolidation loan, as your monthly charges will be condensed under a single umbrella of interest.

One Payment Rather than Several

Owing one lender instead of multiple will not only make your payments better organized, but will also greatly reduce your stress when it comes to confronting your outstanding accounts. Being faced with several mounting bills can be daunting for anyone, and thus, paying them off in unison will make the process far more convenient and less clumsy – fewer creditors mean less hassle, and ultimately a more speedy credit recovery.

Having to remember only one payment per month also eliminates the danger of forgetting to repay your debt accounts and will make the entire repayment more methodical. Even a single late payment can greatly impact your credit rating, which is why it is always a good thing to avoid getting into this situation and to make your payments on time.

More Affordable Monthly Payments

A debt consolidation loan has another perk – you are given the choice to extend the terms of your loan. Rather than feeling overwhelmed by a short-term six month repayment period, a term of a year or longer enables you to cut down on your total monthly payments. Instead of being snowed under by a host of large payments, you’ll be in a much less stressful position having monthly payments that are considerably less. This is a welcome bonus for anyone who is already in the red and is seeking the most affordable financial solution. The reduced monthly payments thus help you to pay your bills on time, making your debt-free future that much more realistic.

Tax Free Investment

Repaying high interest debts is one of the best investment choices you could make when you are knee-deep in debt. The most prominent example in this regard is credit cards: the return on this investment will be in excess of 20%, which will also be tax free. It is therefore advised that once you have consolidated your debt, to first pay off your credit cards and then to move onto debt that has a lower interest rate. This will eliminate your most crippling debt accounts, leaving you with the surplus debt that corresponds with more affordable interest rates.

Better Money Management

By improving your credit record you demonstrate to your creditors that you are responsible enough to handle your debts and repay them in an organized and time-efficient manner. This option subsequently helps you to create a realistic budget, which will eventually advance your money-saving goals and your task of paying off your accumulated debt.

However, a debt consolidation loan will only work for you in the long-run if you vow to curb your spending habits and do your best to save cash. In this regard, it might be a good idea to get rid of all your credit cards and only retain one for emergency situations. These steps will help you grow in terms of managing your personal finances and keeping detrimental liabilities at bay.

If you are looking for a solution to your debt problem, then debt consolidation may be a worthwhile option. It is a far better alternative to bankruptcy, because debt consolidation helps you to get a better grip on your finances and saves you from the consequences of a bad credit rating. In addition, a debt consolidation loan will, in most cases, offer you a better interest rate than your current debts, while also giving you an improved monthly cash flow.

You can approach a number of lending institutions to apply for a debt consolidation loan. This loan will allow you to settle several accounts. Subsequently, you will find that you are able to manage your accounts more effectively because you are only liable for one account as opposed to several.

When Should You Consider Debt Consolidation?

• If You’re Facing Bankruptcy

If you are facing bankruptcy, debt consolidation is a viable escape route. If you take out a debt consolidation loan before it’s too late, you can prevent further debt and you can save your assets from being repossessed by collection agencies. It will also give you more time to earn the money that you need to pay off your debt.

The option of declaring bankruptcy should only be used as a last resort, as there are long-term consequences that accompany a tarnished credit rating.

• If You’re Struggling to Pay the Bills

Perhaps you live from one paycheck to the next, never managing to get ahead of your monthly account payments. This is usually due to high interest debt. The high interest charged on some credit card debt, retail cards, student loans and motor vehicle loans can take up a large chunk of your salary. You have possibly fallen into the perpetual interest cycle, where you are never able to settle your accounts because your salary just covers the interest they charge you.

A debt consolidation loan is a good way to squash the perpetual interest rate cycle. Most debt consolidation loans will offer you a lower interest rate than that of all your combined debts, saving you thousands in the long run.

• If You’re Struggling to Keep Track of Payments

Many South Africans fall into the trap of opening up multiple accounts, with the result being that monthly payments become too many and there is difficulty in keeping track of debt. Perhaps you have encountered this problem, and you’re not even sure how much you owe in total.

A debt consolidation loan will not make your debt disappear, but it will help you to take control of your finances. This type of loan will effectively merge your debt by giving you the immediate finance to settle several accounts. Subsequently, you will only be liable for one account, enabling you to manage your debt more effectively and be realistic about your spending habits.

Summary

Debt consolidation is a sensible option if you’re looking to turn your financial situation around. Whether you’re facing bankruptcy, living from one paycheck to the next or struggling to keep track of multiple accounts; debt consolidation will facilitate a better approach to managing your finances.

You will still have to work hard to squash your debt, but integrating it will make it much more manageable. In addition, debt consolidation loans usually offer a better repayment structure and a lower interest rate when compared to your combined debts, ensuring that you are not overcome by the perpetual interest rate vacuum.

The decision to consolidate your debt will end up saving you a lot of time and money in the long run. There are many compelling reasons why this kind of loan can work for you.

Ten Reasons to Consolidate Your Debt:

Reason One: Improves Your Management Skills

If you have so many debts to pay that you often skip payments on the smaller accounts, debt consolidation will eliminate that hassle forever. Pay one account every month, it’s that simple. 

Reason Two: Lowers Your Interest Rates

Multiple accounts equal multiple interest rates and they all rise every year. With your consolidation loan you can pool all of your accounts into one – and pay only one interest rate. This interest rate is usually far lower than any of your current account rates.

An added bonus is the improvement of your interest rates. Your debt consolidation company will liaise with your creditors and have them reduce or improve your rates so that you can get rid of your debt – fast.  

Reason Three: Provides Debt Consolidation Services

It is often understated, but if the company that offers you debt consolidation is really good, you will end up repaying your debts much faster than you would have on your own. They ensure that the process is swift and convenient. In the end you save money on the time they save you.

Reason Four: Improves Credit Rating

With debt consolidation you will be given a loan that will allow you to pay off all of your other accounts. Immediately your credit rating will improve, and within six months to a year it should be perfect again. Your credit rating is highly important. Any future loans for your new home or car will be impossible if you have bad credit.

Reason Five: Rids You of Nagging Creditors

Once your accounts have been settled there will be no need for seven different places to call you every month demanding money, or to remind you that you are in arrears. No more harassment from persistent strangers, what a pleasure.

Reason Six: No More Debt Division

Juggling debts in order to keep them under control is no permanent solution. There are almost always one or two specific accounts that suffer terribly and destroy your credit rating. With debt consolidation you can keep track of your payment every month.

Reason Seven: Lowers Stress Levels

When what you earn doesn’t cover the amount of debt that you have, your standard of living can drop to unbearable levels. Knowing that you have enlisted professional help and are paying off your debts will remove a massive burden from your life.

The peace of mind that comes with hassle free debt repayment will allow you to start living your life again. Suddenly, the more you pay, the lower your debts become.

Reason Eight: Saves You Money

Because the debt consolidation company will help you pay your debt faster, you will save a lot of money from monthly interest rates. You also accumulate savings in the form of late fee elimination and debit orders from the bank that come off your account each month.

Reason Nine: You Can Start Over

Above all debt consolidation is about debt management. You will learn to manage debt while the company you took a consolidated loan from resets all of your accounts. Once your loan is paid you have a blank slate to work on once again. Your credit rating will be excellent and you will be able to continue with your life, a little wiser than before.

Reason Ten: Anyone Can Do It

It doesn’t matter that you don’t own any fixed assets yet or that you are young and starting out. Whoever you may be there is a debt consolidation loan for you. The company will simply calculate the loan you can afford to make based on your individual criteria.

This is because someone with bad credit is a high risk. They know that you miss payments; they know that you juggle your finances and are in a substantial amount of unpaid debt. Based on your rating you will be denied business loans, home and vehicle loans. What this essentially means is that your standard of living will drop over time if you consistently have bad credit.

How to Solve Bad Credit

A convenient solution to bad credit is a consolidation loan. When you have been blacklisted, debt consolidation is the most logical choice for you. Most of the big South African banks will not consider loaning you any kind of money when you have a bad credit score. There are other options out there, and debt consolidation companies are more than willing to help you out of a tight spot.

Debt consolidation will effectively join all of your sundry accounts and debt into one account, payable each month and at lower interest rates. The lower interest rates will have you paying off more of your debt each month, not just the fees involved. 

Secured Bad Credit Loans

If you are in the advantageous position of owning a home, then you can use it as security when taking out a cash loan from a debt consolidation company. Owning a large fixed asset like property will almost always make it easier for you to qualify than those without such collateral. Other large fixed assets can also be used as equity and because of the lower risk involved the company will decrease your interest rates.

By loaning the money from the debt consolidation company, you can then pay all of your debts. Most black listings or marks on your credit record take six to twelve months to clear up but once they do you will then be able to open accounts and take out loans once more.

Unsecured Bad Credit Loans

Alternatively, if you do not have anything to offer as security against your loan, this is not much of a problem. Though your interest rate will be higher and the amount you are allowed to borrow less, you will still be able to take out a loan and clear your debts.

What Can I Pay Off With Consolidation Loans?

Most debt can be cleared completely with debt consolidation which means that your bad credit will soon be a thing of the past. Whether you need to pay off your credit card, clothing accounts, doctor’s bills or your car – a consolidation loan will eliminate the problem and manage your debt privately and professionally. 

A bad credit consolidation loan can save you the hassle of having to deal with your creditors continuous phone calls demanding the money that you owe them. It can rapidly speed up the repayment process because interest rates drop so low. Professional men and women from the company will help you manage your debt so that when it is all paid up you are free to start over.

From Bad Credit to Good Credit

When you pay an account in full it takes a few short months before you are in the green once again. Your consolidation loan will be uniquely tailored to your specific needs and will remove the stress and hassle of wayward debt, bad credit and financial ruin.

Debt consolidation has become an increasingly popular method of managing debt. You may find yourself in a situation where you are unable to produce money that you owe with immediate effect, consequently placing your personal assets in jeopardy. Taking out a debt consolidation loan will ensure that you are able to pay these smaller debts with immediate effect, thereby saving your assets from being repossessed and giving you more time to pay back your debt.

How Does Debt Consolidation Work?

Taking out a debt consolidation loan means borrowing money from a lending establishment, like a bank or a company, to pay off all of your current debts. This loan will not make your debt go away, but some lending institutions may be willing to negotiate a better repayment structure and interest rate than you currently have. Overall, it is a far more straightforward way of administering debt repayment.

Consolidating your debt ensures that you will no longer have to worry about paying several accounts on a monthly basis. Instead, you will be liable for only one straightforward account with one interest rate.

Confronting Your Debt

An important factor to consider is the psychological challenge inherent in debt consolidation. Many people spend on different accounts so that their debt won’t seem too big. Facing up to your grand debt total can prove to be overwhelming. Debt consolidation is all about integrating your debt, so there is no escaping those large figures.

Nevertheless, confronting your debt balance is a good thing. Not only does it bring a sense of reality to your spending habits, it also provides you with the motivation to save more and to work toward diminishing your debt.

However, for some people the opposite is true. The urge to spend after you have paid off your accounts can sometimes prove irresistible. This is a dangerous mindset. It cannot be overemphasized enough; accumulating debt on top of your consolidated debt is a very bad idea.

Things to Consider

Most debt consolidation loans have some form of repayment deadline, so you do not have unlimited time to repay your loan. However, debt consolidation does buy you some much needed time to earn the money that you owe. It certainly removes the anxiety that accompanies the possibility of having your house or your car repossessed.

The interest rate on your consolidation plan is another thing to consider. Interest rates differ so it is best to look around. Some advertisers are sneaky when it comes to offering interest. They offer a very good interest rate, but only for a limited time. While you may feel ambitious about paying your debt off fast, the reality is that you will probably have this loan for quite some time.

Usually there are a few requirements that need to be met in order to qualify for a debt consolidation loan. The requirements – like your age, whether you are a homeowner and your income – will generally determine the loan amount as well as the interest rate.

Summary

Debt consolidation is a good way to avoid the perils of a bad credit rating, being blacklisted or having your assets repossessed. All the small amounts that you owe on different accounts can cost you thousands in accumulated interest, but a debt consolidation plan will give you one interest rate and one account. Not only will you be given the time you need to pay back your debt, you will also be given a more structured and manageable way of dealing with your finances.

It may seem thoughtless to borrow more money to pay off your current debts, but many have found that a debt consolidation loan has benefits that far outweigh those of paying off several accounts at a time.

Applying for a debt consolidation loan is fairly easy. Many lending establishments, like banks and companies, offer consolidation loans based on a few basic requirements. The next step is deciding which loan is right for you.

Unsecured Loans

An unsecured loan is one of the two main types of debt consolidation loans. This loan does not require you to provide any form of collateral. Basically, you will be given the loan without providing security in the form of an asset, like your property.

The main draw card with an unsecured loan is that you will not have your assets repossessed if you are unable to repay your loan.

The primary disadvantage of an unsecured loan is that you will be required to pay a considerably higher interest rate in comparison to a secured loan. This is because the risk is higher for the lender when no collateral is provided.

Who Should Apply For an Unsecured Loan?

If you don’t have any major assets or you have a bad credit score, then this may be the only loan on offer to you. Even so, you will still need to work out if it is a worthwhile option.

It is important that you check whether the management fee and interest on an unsecured loan is in fact less than what you already pay on your current debts.

Most major banking institutions do not offer unsecured loans. As a rule, it is vital that you investigate the credibility of any lending company or institution that provides unsecured loans.

Secured Loans

A secured loan requires that you provide collateral against money borrowed. Your assets, being your car or your house, are offered as collateral so that if you fail to make repayments the lender can repossess them for immediate repayment.

The risk is considerably lower for the lender when viewed in relation to an unsecured loan. As a result, you will qualify for a higher loan and the interest rate will be lower.

The only disadvantage in opting for a secured loan is that you risk losing your assets if you default on payments.

Who Should Apply For a Secured Loan?

The option of a secured loan is available to you if you have assets that you can offer a lending institution as security. The value of your assets will determine the amount of money on loan to you and the interest rate you are offered. Both the loan and the interest rate will be considerably better than an unsecured loan.

Many South-African’s choose to take a second bond on their home when consolidating their debt. This common approach may put your property at risk, but the comparatively lower interest rate that it tends to offer makes it an attractive option.

It is important that you realize the consequences of applying for a secured loan. It takes a certain level of responsibility on your part to make sure that you don’t default on your payments. If you do default on your payments, you risk having your assets repossessed.

Summary

The two main types of debt consolidation loans on offer are secured and unsecured loans. They both offer a way of managing insurmountable debt. Your individual requirements and circumstances will ultimately determine which type of loan is best suited to you.

A Step in the Right Direction

Consolidating your debt – that is, merging it all into one lump sum – can be a positive step in beginning to reorganize your financial clutter, and you can then take out a loan that pays off all of your outstanding accounts in unison. A debt consolidation loan of this nature will greatly reduce the costs of your total interest, which in turn lowers the monthly payments that you will pay. You will also find this loan structure more convenient and easy to manage, as you will be dealing with one single account payment, instead of a whole host of separate amounts that need to be submitted to creditors each month.

Specially Calculated Payments

Effectively, your payment installments are lower than what you would be offered if it were a traditional credit card facility, in that it awards you better, more affordable rates. This is because the payments on your consolidation loan are generally calculated using an amortization schedule: this method of calculation means that each payment will include a portion set aside for the interest payment, and a segment that is dedicated to condensing the overall balance.

The reason why it is so difficult to bring down your credit card balance is because of the fact that credit card interest is charged only on the outstanding balance. This amortization formula helps achieve a lower interest rate and a more affordable monthly repayment figure by transferring the outstanding credit balances you may – at an interest-only rate – into one amortized loan that diminishes your debt with each payment made. In this way, your money is actually going towards paying off your outstanding debts instead of the interest that has been added to that loan.

How a Debt Consolidation Programme Works

The basic purpose of a larger debt consolidation loan is that it helps to pay off a multitude of smaller loans in a more constructive way. The programmes are very helpful for clearing up your debt in a holistic way. There are a whole host of scenarios which may require the adoption of such a scheme, and doing so will eliminate a lot of stress from the task of managing your finances.

Things to Keep in Mind:

• Consolidating all of your debts into one loan means that you only have to write out one check or make a single payment to your creditor each month.
• The overall interest rate will drop significantly, saving you a small fortune in the long-run.
• It is ideal for credit card debt, which normally carries a fairly high interest rate.
• Remember that this is merely a method of reorganizing your debt, not a way to instantly get rid of it: you are still responsible for reimbursing the company who issued your consolidated loan.
• This programme should only be used as a last resort: if you decide on this option and end up extending your repayment periods, you could end up paying exorbitant interest.
• Places at which you could inquire about such programmes include: local banks that you are already familiar with, as well as local lenders who want to establish a business relationship with you.
• Be aware of the latter option as there are several scams happening on this front, and such a dilemma would only further intensify your financial burden.

A debt consolidation loan might be a good way to go, as this option essentially consolidates all of your existing debts into one big loan, often providing you with a lower interest rate. Such a scheme also has the added benefit of dramatically decreasing your monthly payments.

What is it exactly?

This plan helps you to repay all of your debt in a more organized way, by lending you a certain amount that it calculated according to your individual circumstances. Following this, your fixed monthly installments are determined, which will depend on the size of the loan. This way, you no longer have multiple debts and can eliminate the risk of defaulting on some of your current payments.

Benefits of a Debt Consolidation Loans

• Reduce your monthly account charges
• Save on interest payments
• Have the convenience of one account payment, instead of several
• If you only have one account on your name, your personal Credit Record will be improved
• Save money on bank and debit order charges
• Allows you to organize your monthly payments in a way that best fits your budget

Resuscitate your Credit Record

Another perk of consolidating bills is that it helps get your credit record back on track. The worst part about constantly accumulating debt is that it drastically harms your credit record. Missing repayments or simply having a gradual build-up of debt translates into excess credit that can be extremely difficult to manage if it is ignored or set aside for a long period of time.

However, this dilemma can be bettered if you consolidate your accounts and pay off your outstanding bills in unison, rather than individually, with each having an exorbitant interest rate. As your bills are paid off one by one, you slowly start to reduce the damage done to your credit rating. Once your credit record has been revived, you will find that debt consolidation really does save you substantial amounts of cash in the long run.

Types of Debt Consolidation Loans

When considering your options, there are two basic forms of consolidation loans – a secured or unsecured loan – which each suit particular financial circumstances. Either way, both benefit you by replacing the many smaller loans that you have with a much larger one that will ultimately be more manageable.

Secured debt consolidation loan:

• You offer your property as security against the loan, which serves as collateral
• If unable to repay the loan, you run the risk of losing your property
• Owing to the security that your home presents, the interest will be significantly lower
• You will qualify for a much bigger amount than you would if you opted for the unsecured loan
• It is advisable to repay this kind of loan over the short term

Unsecured debt consolidation loan:

• You will be granted finance without having to present any kind of collateral
• Thus if you are unable to repay the loan , your property will be protected from repossession
• Due to the higher risks associated with this loan, you will have to compensate the bank by paying a fairly higher interest rate than a secured loan would offer
• If a form of security isn’t presented, you won’t be in the position to qualify for a large sum of money