Debt might sound like a swear word to you, but for some, it’s become a way of life and quite simply the only way that people are managing to get through the month.

While we aren’t fans of debt, we are well aware of the challenges that South African’s face on a daily basis where finances are concerned.  The bottom line is – it can happen to any of us. Debt does not discriminate! One extremely brave choice in opening up a business and taking out a business loan can lead to months, even years of struggle if it doesn’t pan out the way we had forecasted.

A tragedy in a family can turn a dream into financial turmoil in seconds, let alone the more familiar financial burdens that the working-class face, such as high medical bills, unexpected expenses and the likes thereof.

Debt is a reality for individuals in this country and we need to know there is a safety net to catch us when the debt trap hits. That is why so many lending institutions and private companies now offer debt consolidation loans, to save you from yourself and the financial situation you have found yourself in.

What is a Debt consolidation loan?

Your current situation probably looks like this: a few credit cards for shopping or emergencies; a clothing account (or two) to make sure the family is all clothed, and boy do kids grow out of their items so quickly; a personal loan that you took out for your eldest’s tertiary education. Each month you pay all of these lines of credit off, so much so that the first of each month your mobile phone sounds like a morning alarm with all the alerts! Guess what? You’re paying interest on each of those accounts and at rates that you can’t even negotiate.

When you apply for a consolidation loan, the lender takes all of your outstanding debt and converts it into one total figure, that is now far easier for you to manage monthly and better yet, comes with an improved interest! Meaning, you actually save money by going this route!

Your creditors are still paid monthly; however, they are paid an amount that the lender negotiates with them that leaves all parties satisfied with the new arrangement. Since you were no longer able to afford the payments anyway, the creditors are only too happy to be receiving a monthly payment that they can rely on monthly.

How do I know if I need to Consolidate my debt?

Are you finding it difficult to meet payments every month? Are you finding that there’s more month and money when it comes to spending on your day to day costs of living? If so, it’s very likely that you should apply for a debt consolidation loan.

Depending on the severity of the debt and how many personal loans you have this will then further determine if you qualify for this loan type. In the event that your debt is still somewhat manageable, you might just be referred to debt counselling, where they can go about explaining and guiding you on the ways in which to restructure your budget, cut costs and get in control of your debt.

What determines whether I am over-indebted and qualify?

You’ll have an income and expense breakdown that goes through for analysis whereby a debt counsellor will determine the above. Once your expenses are all paid, the income that is left over needs to be higher than the repayment amount on the consolidation loan. If your financial sum matches this requirement, then you qualify for the loan. Bear in mind that your credit history can’t afford to look like a dog’s breakfast either, it will need to be in relatively good standing so that the lender doesn’t feel as though you are a too high risk to award the loan.

What steps should I take before applying for this loan?

Right, so you’ve established that you need to apply for this loan, which means you have most likely already considered debt counselling and realise that you need far greater assistance in this department. Perhaps this isn’t your first debt trap rodeo and you realise that you have issues with staying in control of your debt, then the first step is to find a reputable lender that you know will meet your financial and personal needs.

There are a plethora of lenders out there, so you’ll certainly have your choice for the picking. But do your homework, research their fees and interest rates as well as their company policies. Often, you’ll find that a certain lender might not be in line with responsible lending, you don’t want to end up falling into more debt than you started just because you chose a lender who didn’t care enough about your financial future and were rather in it for a quick buck and commission on the loan. Payday loans and personal loans for bad credit should be avoided at all costs if you are at this stage in the debt cycle. 

Once you’ve studied the options and have successfully chosen who you think fits the bill, the next part would be to consult them about applying for a loan. A debt counsellor will assist you through this process.

What does the Debt counsellor do?

Essentially, they will take your financials and draw up a quote for each of the creditors to which you have an outstanding balance. He draws this agreement up for approval so that when the time comes for the singular repayment to be made, everyone is in a position where they are happy with the terms and conditions of the plan to consolidate your debt. It is crucial to pay off short-term debts like credit cards and payday loans first as they carry the highest interest. 

You, the debtor, are then issued with a singular repayment amount that you need to meet monthly and on time on the date that you agree to with the lending institution. The debt counsellor facilitates all of these processes. Your monthly repayment is thus drastically reduced to an amount that gives you room to breathe once your expenses have been met. Not only are you paying less per month, you will also be saving money since the interest rate that you now pay is far lower as a result of only having to pay one!

Is consolidating my debt the best solution to my problem?

If you’re over-indebted, then yes. Always, yes! Debt consolidation loans provide you with financial relief when you’re starting to drown in your own debt pool. Multiple accounts mean multiples interest rates and multiple payments to manage, which equate to multiple problems.

There are many bad credit loans you can take out to try and resolve your debt, but you aren’t going to find one that best suits the resolution of your debt problem, i.e. the advice you receive on how to budget for the future so as to avoid falling into over-indebtedness again, and the mere fact that it is never a good idea to settle debt with more credit!

How do I apply for the loan?

Most lenders have online loan application forms that you can simply complete and submit in order to receive a call from a reliable and expert debt counsellor. Alternatively, you can call the lender of choice and set up an appointment. Whichever you decide, the important thing is that you have to take the biggest step of all by deciding to eliminate your debt and regain control of your financial situation!