Debt Consolidation Loans South Africa
Feel like you’re drowning in debt and barely managing to cover the minimum payments on your credit card, short term loan, or personal loan?
If so, then a debt consolidation loans could save you from potentially damaging your credit rating and in the process save you tons of money!
What Is a Debt Consolidation Loan
Most short term credit facilities charge exceptionally high rates, so the idea behind debt consolidation is that you take out one LARGE loan, at much lower rates and use it to pay off all the small debts. This will leave you with one monthly payment, which you can hopefully cover until the balance is repaid. Debt Consolidation loans are not a restart-button – but if you do use it as an opportunity to cut your spending and get back on track, it is a great money saver!
To see whether a debt consolidation loan is for you, simply follow the steps below:
- Add up all that you owe
- Make a note of the rate you’re paying for each loan
- Then, compare debt consolidation loans and see what interest rates they would charge
|What You Owe||Credit Card||Short Term Loan||Retail Credit|
|How Much You Owe||R20 000||R5 000||R2 000|
|Your Monthly Repayments*||R 500||R1 000||R 50|
That’s R1 550 INTEREST each month to service your current debt of around R27 000.
Now consider a debt consolidation facility of R27 000 at 12% per year – this would work out as follows.
|Loan Amount||Interest Rate||Monthly Repayments|
|Consolidation Loan||R 27 000||12%||R 270|
So you can see from the above example, that a debt consolidation loan could save you over R1 000 EACH MONTH!
Is a debt consolidation loan right for you?
So you can see from the above calculation what impact debt consolidation can have on your monthly repayments – so should you immediately try and consolidate your outstanding payments?
Whilst debt consolidation can save you money, it’s generally not a good idea if you will be tempted to take on more debt. You should use the reduced payments to get back on your feet and build up some financial stability.
You need to be disciplined enough to avoid more loans and credit cards, or you risk falling into an unmanageable level of debt.
Once you’ve consolidated, think about cancelling your credit cards and any overdraft so you’re not tempted to fall back into deficit.
Take the time to compare debt consolidation loan rates and do the sums for your own circumstances – you could be surprised.