So you have debt and you want to consolidate it. Before we go any further lets look at the details of debt consolidation loans. These types are loans are for people who have very bad credit and have debt piling up over their heads. What usually happens is you will swap 2 or three debts for one amalgamated one that you can pay back at a less steep rate.
Debt Consolidation Example
We would like to make something clear here, your debt consolidation company will make money off you. That’s why they do what they do. For example, you have R70000 in unsecured debt. a three year loan for R20000 at 15% and a five year loan for R50000 at 10%. This means you are repaying per month R 666. Your debt consolidation company tells you that they can get your repayments down to R415 per month and lower your interest rate to 9% by pulling strings and negotiating for you with your creditors. This sounds great! but think about it for a second, what they wont tell you is that you will now take six years to pay the loan off. This may sound fine to you, but if you work out how much extra you will need to pay, then you realize where they get their money from. You now pay R85000 over six years instead of the original R70000 you owed. To some it doesn’t matter, in the end it’s really up to the person taking the loan.
When You Should Use Debt Consolidation
Interest Rates The Are To High
1. Some types of debt can be financially crippling. Credit card debt is one of them. With up to 28% or more! If you find yourself in this situation there’s a good chance you wont be able to get out of it. This is one reason why going for a consolidation loan is better because the repayments are less and the interest rate a little less steep.
High Monthly Payments
2. Do you find yourself paying high monthly costs? This can lead to a knock-on effect where you’re getting deeper into debt because of rising interest rates and snowballing debt. A consolidation loan in this case can help you out of debt.
To Many Bills
3. Another problem that is common among a lot of folks is the amount of bills seeming coming from everywhere. This build up of debt can seem overwhelming. Using a consolidation company, you can finally reast easy because all your bills will be payed as one amount.
Debt consolidation really can be a help or your worst enemy. There are benefits to using it, but we suggest doing your homework and understanding exactly what options you have will go a long way to helping you get out of your debt situation.