As a country facing a lot of debt, we're doing our best to help South African consumers understand credit health, loans and other forms of finance. In this educational series, we're tackling the debt consolidation industry. Even though debt consolidation is the first step for many to escape mountains of debt, you should know as much as you can about it.
In this third post of our Debt Consolidation Education Series, we're going to talk about the 5 simple methods you can take to consolidate your debt on your own and where you can find debt consolidation partners.
Remember, if you're considering a debt consolidation loan, we can help you responsibly compare options on our Debt Consolidation Comparison page.
So, let's get started!
What simple steps can you take to start consolidating your debt?
Let's quickly recap on what exactly debt consolidation means
This is the process of using a loan to pay off other debts. Now, this may not sound like a very bright idea at first, but everything has its good and bad sides. Debt consolidation serves as a lifeguard between drowning in debt and swimming in it. Debt consolidation gathers all the user’s debt and allows him/her to pay one large amount rather than many amounts.
Why consider debt consolidation?
Many people have turned to debt consolidation when they have realised that they are out of options and bankruptcy is around the corner. While debt consolidation involves a lot of risks, it gives the user in debt chance to gather money to repay that loan that got them into trouble the first time.
If you missed these on our previous posts these are the obvious signs that you are over-indebted:
- You struggle to keep to the terms agreed with your credit provider, specifically paying on time
- You borrow money to pay off other debts
- You have to skip payments on certain accounts to enable you to pay others
- Overdraft facilities and debt is used to buy food and necessities
- You have received letters of demand or summons from credit providers or their lawyers
- There has been a judgement granted against you
5 simple steps can you take to start consolidating your debt
So, by now you are already stressed out enough and do not need more on your plate. Here are 5 methods to make this as easy as possible:
1. A debt consolidation loan
We list this option first because it is many times the option people feel safest with. Choose a responsible debt consolidation lender willing to consolidate the loans you are least capable of working in your monthly budget right now.
2. Choose to go to for debt counselling
By paying a monthly fee to a counsellor, you can try to solve your debt without getting a loan. This is one of the other most obvious forms and is why we list it second. This is seen as a form of debt consolidation because you pay to reduce your debt.
3. Obtain a new credit card
Search for the lowest interest rates possible when applying for a credit card to consolidate your debt. Remember, the purpose of obtaining this credit card is to reduce your debt, rewards don’t matter as much as interest. Make sure your credit card is set on a fixed limit and lastly, pay attention to the fine print.
4. Get a secured loan, offering property as collateral
See if you qualify for a secured loan by contacting a bank or a lender. Do not overlook private financial institutions as they sometimes offer the most affordable interest rates on loans.
5. Apply for an unsecured loan
These loans are a bit harder to obtain as the credit background check is more strict than secured loans. They have higher interest rates but offer bigger amounts once the loan has been approved and longer repayment periods. The danger of this is that you could fall into a bigger interest rate trap and increase your outstanding debt!
Who offers debt consolidation and products like these mentioned above?
Remeber, if you're considering a debt consolidation loan, we can help you responsibly compare options on our Debt Consolidation Comparison page.. Fincheck doesn't originate any financial products, but we're helping people to choose better financial partners!
Banks offer secured and unsecured (risking an asset as collateral to pay the loan) consolidation loans. The biggest perk of asking a bank to help you with your debt is that you know they know who they are talking to. Depending on which bank you choose to take out the consolidation loan, they usually have good references (and bad ones) which makes it easy for you to make a choice.
Unlike other consolidation loans, payday loans do not require a credit background check. Instead of paying off individual debts for you, payday lenders hand you the cash, and give you the freedom of settling your debts on your own. This allows a massive amount of privacy and with that comes a lot of responsibility. Before you choose to make use of payday lenders, make sure you are a self-disciplined person and will not use the money to make other purchases.
Or, finance companies. These lenders do not accept deposits like other financial institutions. They will pay off your debt for you, and send you a bill at the end of the month. Specialized lenders will do a background credit check although they are not extremely strict. They are based on interest and will require their payment in full once your debt has been cleared.
We realise this is a lot of information to think through and that each person’s situation is different. So, we want to help you make the right choice. If you are considering debt review or a debt consolidation loan, we encourage you to make use of our debt consolidation comparison page to compare the different lenders and their basic options.
To your better financial future!