The Pros & Cons Of Debt Consolidation

Are you battling to make ends meet?

Trying to manage your debt can be tricky, right? If the stack of bills piling up on your kitchen table is growing far quicker than you can clear them, you might want to consider debt consolidation as a next step.

What is debt consolidation?

Debt consolidation involves taking out a single new loan (at the lowest possible interest rate) to pay off multiple smaller debts. Rather than having multiple debt repayments at higher interest rates, you consolidate all of these smaller loans into one loan, with the lowest interest rate.

Here are the advantages of debt consolidation

  • You only have one payment at the end of the month as opposed to juggling multiple creditors
  • Your monthly instalment is typically less than the total instalments of the consolidated debt put together
  • You get to pay off those accounts which might have potentially caused you to tarnish your credit score

What are the disadvantages of debt consolidation?

  • Although you might save in the short term because of reduced interest rates, consolidation loans normally stretch over longer periods of time so you might end up paying more towards your debt in the long term.
  • Consolidating your debt can potentially open doors for more poor spending habits. Paying off your debt can give you a false sense of financial freedom, but those credit cards or overdrafts will still be available to use and this might cause you to fall into a worse debt situation.
  • Your debts do not reduce when you consolidate them, you only replace one or many debts with another one. This will not be a good idea for over-indebted consumers.

When applying for a consolidation loan, you will need to provide the following documents or information:

  • 3 months non-internet stamped bank statements
  • 3 months’ pay slips and a contact person and number for your HR division.
  • A copy of a green bar-coded Identity book or ID card
  • Proof of residence
  • Details of your next of kin (name, address, contact no.)
  • A settlement letter of your latest existing loan accounts to be settled (maximum 5 accounts to be settled)

What happens when you apply?

  • A consultant will check the documentation for accuracy
  • A credit check will be done
  • Your repayments to monthly income will be calculated
  • A valuation of your property will be done
  • The application will be forwarded to the banks for approval

Until next time.

The Wise About Life Team

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