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Consolidate your debt now: here’s how






It happens to the best of us: a credit card here, a store account there. Soon, the bills are coming at you thick and fast and you can’t keep track of how much you owe on which account and when. You probably also find yourself with empty pockets soon after payday, with still more ‘overdue’ notices arriving in your inbox. Enter: debt consolidation.

Debt consolidation simplifies digging yourself out of a financial hole – and it helps to improve your credit history along the way.

One more time for the people at the back

As the name suggests, debt consolidation aggregates all your debt and loans into one account – one big picture, if you will – with one monthly repayment. It’s a way to untangle a messy financial situation and manage your repayments more easily. Plus, your overall interest rate on your debt will be lower (more on that shortly). Win-win!


Debt consolidation aggregates all your debt and loans into one account – one big picture, if you will – with one monthly repayment.


Consolidation. Counselling. Settlement. What’s the difference?

A word to the wise: debt consolidation, counselling and settlement are entirely different kettles of fish.

Debt consolidation doesn’t erase your original debt. Rather, you take out one big loan with a new lender and use it to pay off all your smaller loans. It’s about making it simpler for you to handle your finances. If managing all your smaller debts felt like herding cats each month, now you’ve got just one giant kitty to remember to feed.

Debt counselling, on the other hand, is a service that you sign up for with a financial institution. The word ‘counselling’ is a bit confusing, because this is a lot more formal than some financial life coaching – debt counselling is a legal process. You’ll be declared over-indebted and appointed a counsellor (an expert in managing debt) who will negotiate a restructured, affordable payment plan with your creditors. While you’re under debt counselling, your creditors cannot take legal action against you and you’ll learn how to better manage your debt. The downsides? You won’t be allowed to access any more credit while under debt counselling, your debt may take a little longer to pay off, and there are some fees involved (set by law). But in the end, you’ll be debt free with some better financial habits.

Debt settlement should be your last step in the debt journey. It reduces the amount of money you owe to the people you owe. It’s true: you can negotiate (or have a debt-counselling company negotiate on your behalf) with your lenders to settle an agreed-upon amount of your loan without you actually paying it in full. Lenders may not exactly advertise the fact that they’d be willing to settle for a smaller repayment now rather than no repayment later, but in extreme circumstances that’s exactly what they’ll do. Basically, they’ll grab the opportunity to take what they can get from you, while they can.

But this comes at a price. Debt settlement should be your very last port of call. You’ll need to come up with a substantial sum of money to settle the remaining part of the loan – and it goes without saying that your credit record will take a serious knock.


If managing all your smaller debts felt like herding cats each month, now you’ve got just one giant kitty to remember to feed.

Pros and cons of consolidating debt

There are a number of pros to consolidating debt: the single monthly payment, one interest rate and the opportunity to improve your credit score. It can take some time to see these changes reflect in your credit score, but by making regular, timeous payments on your one new loan, you’ll eventually start to see an improvement.

The downside is that there are additional fees to consider when applying for debt consolidation. These include origination fees, balance transfer fees, closing costs and annual fees. What’s more, if you consolidate your debts into one loan with a longer payment term, the overall total payment may be greater (but, again, this comes down to interest rates).

Most notably, debt consolidation doesn’t address any of the bad financial habits that got you into debt in the first place – something to think about, if you don’t want to find yourself in the same position down the line.


There are a number of pros to consolidating debt: the single monthly payment, one interest rate and the opportunity to improve your credit score.

What are the different types of debt-consolidation loans?

All loans are either secured or unsecured. With a secured loan, the borrower (hi, that’s you) puts up an asset (property, a car, those Kruger Rands your ouma stashed away for her grandchild’s education) as collateral for the loan. If you’re in the kind of sticky situation where you simply can’t pay back your debt, the lender takes ownership of that asset (jammer, Ouma) in order to get their money back.

An unsecured loan doesn’t have any collateral associated with it. That’s obviously a little riskier for the lender, so you’ll be looking at a higher interest rate compared to secured loans.

How to consolidate your debt

The first step in consolidating your debt is deciding whether you want to DIY the process or engage with a debt counsellor to help you out. Keep in mind that if you DIY it, you’re looking at a lot of admin (and the temptation to spend your consolidation loan on something other than settling debt). Up for the challenge? Here’s how:

  1. Figure out how much you owe. This is how much you’ll need to borrow (and you may want to consider adding a little extra to that figure to account for the costs we mentioned above).
  2. Calculate your average interest rate. Make your life simple and find an online calculator to do the maths for you. This is the number your new lender will need to beat, in order for consolidation to make good financial sense.
  3. It’s budget time. You need to work out all your monthly expenses and calculate how much you spend on necessities every month. Whatever money you have left over can be used to pay off your debt. That’s the new monthly repayment figure that you can afford.
  4. Compare your debt consolidation lender options. If you’re going for a personal loan, then we can do the hard work for you! Visit our online tool at BetterCompare to get comparative quotes for a loan that you can use to consolidate your debt.


Leave some room for fun! If your budget is too restrictive, you may end up splurging your way back into debt.

Make a success of your debt consolidation

Sure, debt consolidation can be a lifesaver, but it’s not a magic wand. You need to take an honest look at the behaviour that got you into debt, and put systems in place to improve your financial situation.

For a start, ensure your budget is realistic. Remember to account for times of the year when expenses run high (such as the festive season) and for big once-off expenses, like car registration or tax season.

Don’t forget to leave some room for fun! If your budget is too restrictive, you may end up splurging your way back into debt. (Yup, the restrict-binge cycle isn’t related to dieting only.) Having a realistic budget that includes some cash for fun means you’re able to spend money on the odd thing that you love while also being responsible enough to pay off your debt.


PUBSLISHED DATE

18 July 2022

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We are not owned by or affiliated to the companies listed on the site or in our call centre.


© 2022 Better Compare (PTY) Ltd is an Authorised Financial Services Provider

(FSP no. 49357) 24 Flanders Drive, Mount Edgecombe, KZN, 4300