Debt Consolidation Loans: What are they?

According to statistics released by the Reserve Bank, South African consumers are almost
R1.7 trillion in debt, and that over 25 million South Africans owe money to both lenders and
financial institutions. It has also been found that, on average, 72% of South Africans’ income
was used to pay debt.

What is a debt consolidation loan?

This is a method of refinancing available to those who are dealing with very large debt. It
allows them to combine all of their short-term debt. These include store accounts, credit
card debt, as well as personal loans. This type of loan is then used to pay off these smaller
loans. There are a number of benefits to this type of loan. The most notable is that you will
only owe one creditor. Repayments are also usually at a lesser interest rate and over a more
manageable period of time. It must be noted that if you do secure a consolidation loan, you
will be under debt review and you will not be able to apply or receive any other credit
during this period.

How debt consolidation works

There are 2 ways that you can consolidate your debt. If you meet the required eligibility
requirements, and the loan is approved, you will receive the agreed-upon amount in your
bank account and you pay the debts in full yourself. The other way has a different
approach. Here you would give the financial institution settlement letters from your
creditors. The lending institution will then settle your debts on your behalf directly with
those creditors. Regardless of the method you decide on, the lender must give you a
repayment plan that is manageable in order to repay the debt consolidation loan. A debt
consolidation loan won’t immediately release you from debt. It will, however, make it easier
for you to manage repayments. An advantage is that the amount you need to pay over the
long-term is often lower. This is because you are paying off interest on only one loan, and
not several. Accredited institutions such as banks and financial service providers offer debt
consolidation services. The loans are regulated by the South African National Credit
Regulator (NCR) under the National Credit Act (NCA) of 2005.

Speak to Onedebt today for more information about debt consolidation loans.