Bad Debt. Judgements. Administration. Slow Payment Profile. Blacklisting.
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 These are just a few words that have become very common over the past few months as interest rates increase on an almost bi-monthly cycle, as petrol prices increase and food prices shoot through the roof. More and more South Africans find themselves faced with the very harsh reality of falling short in their ability to repay their loans, store cards, credit cards, hire purchase agreements etc.
There are two words that can help you to avoid becoming a victim of the words listed above: Debt Consolidation.
A debt consolidation loan is a loan taken out to pay off a few – or many – other smaller loans. A good reason to consolidate smaller loans into one larger loan is to secure a better interest rate (or even a fixed interest rate, thereby ensuring a fixed repayment amount) so repayments on the smaller debts are combined and only one amount is repayable on a monthly basis. This loan would be repayable over a longer term, therefore buying you some time to repay the initial debts which may already have been in arrears.
How do you go about consolidating your debt? The easiest way is through your homeloan, if you own property, by applying for an extension on your existing bond as long as there is equity in the property (i.e. the value of the property exceeds the existing loan amount). Or you could apply for a separate loan which will be granted against a fixed asset, such as a house. This is known as a secure loan and it will more often than not offer you the lowest interest rate at which the loan will be repayable. It is possible to apply for, and be granted, an unsecured loan if you do not own property but the interest rate on an unsecured loan will not be as favourable. An unsecured loan is also not as easy to find – though not impossible – and will largely depend on the amount of money you owe and how much you own in assets, as well as an existing relationship with the loan provider so they can be sure that you can be trusted to repay the loan.
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One very important consideration to remember when you have been granted a debt consolidation loan is to immediately settle your other debt otherwise you will very quickly find yourself on a path to financial ruin. You should also at all costs avoid falling in to the same spending patterns that originally created the predicament you now find yourself in.
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Debt Blog 