1 May 2017
Debt is such a slippery slope and it’s so easy for things to get quickly out of control. Whether it’s a short-term loan for items like cars, or a longer repayment plan for a home, the road out of debt is long and tough. Debt consolidation is a possible solution for many South Africans to help them get back on their feet financially.
If you have several short-term accounts – a clothing account or a loan for your car, for instance – you’ll be paying off a monthly instalment for each, each of which will carry their own interest rate. Short-term loans typically attract higher interest rates – so the total interest repayments are likely to be adding significantly to the overall debt. This can lead to difficulty in trying to service all these debts each month.
Debt consolidation means taking out another loan – usually at a lower interest rate – to pay off your short-term debts, reducing the total interest payable on the debt, and easing your monthly cash flow.
It’s a common misconception that debt consolidation reduces your debt. Consolidating your debt simply means you’re combining all your debt into one loan, allowing you to extend your repayment time. If the interest rate you pay on the new loan is lower than the rates you were paying on your other debts, then your total repayments should be lower – but the original debt still needs to be paid off.
Furthermore, you should try as far as possible to continue paying off the consolidated debts within the original repayment period, or as soon as you can. This requires discipline and commitment.
Otherwise, paying off the loans over a longer term will result in higher total interest repayments over time.
It’s also important to note that debt consolidation is not the ideal solution for everyone. For instance, if you have a bad credit score, lenders are either going to increase your interest rate, or simply not grant you the loan at all.
If the idea of replacing your current short-term debt with one consolidated loan simply isn’t an option for you, it’s important to know this is not the only solution.
Consolidating your debt can be an astute financial management tool, and for some, it can provide a workable solution to mounting debt. However, it’s important to choose carefully when looking at solutions, because desperation can potentially leave you in a worse off situation. So, take these points into consideration first:
SA Home Loans is an accredited financial institution that can guide you in the right direction. Should you wish to refinance your home to consolidate your short-term debt, speak to one of our consultants about your options.
Contact SA Home Loans today on 0860 2 4 6 8 10 for more information.