When is a Debt Consolidation loan a good idea?

Taking a Debt Consolidation loan could be an effective method for debt re-financing.

What is a debt consolidation loan?

It involves taking out one larger loan to settle many others. It is a financial solution designed to simplify multiple debt repayments and, under some circumstances, save the debtor money.

The process involves taking out a new, single loan, at the lowest possible interest rate, to pay off multiple smaller debts.

What is the purpose of Debt Consolidation?

The purpose of Debt Consolidation is to group together all your debt, with the view to freeing up cash flow and having better control over your debt.

You should only consider debt consolidation if

1. The new consolidation loan instalment amount is lower than all your current debts added together. If it doesn’t free up some cash flow, there is no point in taking on this new debt.
2. The consolidation loan is an unsecured loan for example, your house will not be attached in the event that you fail to pay the loan.
3. The money is used to settle all your smaller debts and is not in addition to your current debt. If you can tick all these boxes, a consolidation loan could save you money on monthly service fees, administration charges, debit order charges and insurance costs. Debt consolidation reduces your service fees because you will only have one account to pay as opposed to multiple accounts.

How to know you need Debt Consolidation?

Typical indicators are the following:

• You are not sure which credit providers you are paying every month
• You are unable to keep track of your monthly debt instalments
• You are taking out loans to settle existing debt
• Most of your income is being used to service debt

How to apply for Debt Consolidation?

If you are in need of financial assistance and are experiencing any of the above situations, mail DebtBusters on 086 999 06 06 to speak to a debt expert who will be able to help you.