Debt Consolidation is a process of 'debt displacement' - the moving of debt from many different accounts into one account to save on the total amount of interest paid or to help with cash flow. Savvy debt consolidation and debt management is all about reducing the amount of interest, and monthly charges you are paying on your outstanding debts.
There are 2 options:
An unsecured consolidation loan is one where there is no underlying asset (like property) being used as asecurity for the loan. Using an unsecured consolidation loan can be quite costly from an interest rate and monthly payment point of view. These are best suited for smaller debts of under R50,000 and are paid over a shorter period of time. It is important to compare interest rates as well as costs associated with consoliodation as you do not want to move a credit card that attracts a rate of 15% and can be paid off in 10 months into a consolidation loan at 30% paid over 60 months! It is best to discuss the various options with your Bond Busters consultant to secure the best consolidation solution for you.
An example of a secured consolidation loan is your home loan. Home Loans are your cheapest source of finance due to it being secured on your property.
Therefore if you have outstanding short term, or unsecured debt, you should consider using your Mortgage to take advantage of the reduced interest rate, one monthly repayment and one monthly account fee. Consolidation through your mortgage is only possible if there is available equity. Equity is the difference between the outstanding mortgage loan balance and the market value of the property.
Other debts that can be consolidated into your home loan are as follows:
The interest rate on the above can range from a few percentage points below prime.
Remember, a clean credit and bank record (no returned debit orders or bounced cheques) are prerequisites for any lending. If you do not have a clean credit or bank record speak to your consultant about how to assist you with providing you with a remedy for your record through a Debt Solution offerings.
WARNING: By consolidating the above debts into one home loan package you are moving short-term debt into long-term debt. We strongly advise, that you continue to repay the same amount that you have been paying on all your current debt into your new increased home loan account. This will enable you to pay off your debt faster and far cheaper.