Debt Consolidation is a debt management tool used when an individual or company is struggling to meet their monthly debt obligations and approaches a debt company to merge all their existing debt into one manageable amount which they will be able to afford to pay every month.
How does a debt consolidation loan work?
After you have approached a debt company for assistance with managing your debt, a debt consolidation consultant will put a monthly budget together for you. This budget will ensure that you afford day-to-day expenses as well as your debt repayments. This consultant will contact all your credit providers on your behalf in order to find the best and easiest payment method for you.
As a result of these negotiations, you may get a lower interest rate and may end up paying a lower monthly instalment. Debt consolidation allows you to merge all your debt, be it retail store debt, short term loans or credit cards etc, into a single payment.
The debt company will issue you a debt consolidation loan which must be repaid within a certain period. The company will then pay off all your debts on your behalf and you will be responsible for paying them and settling your debt consolidation loan. Most South African banks and financial services companies offer debt consolidation.
What are the benefits of debt consolidation?
- Paying a single repayment to a bank or financial institution may be lower than having to pay multiple institutions separately.
- Debt consolidation is an effective way of taking control of debt.
- It’s a simple way of becoming debt-free.
- You can avoid any legal action being taken against you and settle all your debt.
Most institutions require that you be employed full-time. You cannot be under debt review or debt administration either.
The loan amount you qualify for is dependent on your individual affordability, income and risk profile.
Debt consolidation is a simple way of addressing overwhelming debt and is a simple way of becoming debt free.