Debt consolidation is a debt management tool that can be used by over-indebted individuals to get their finances under control. It’s essentially a process that involves using new debt to pay off existing debt owed to creditors and can help you get rid of debt faster.
When applying for debt consolidation, you are still required to meet the necessary credit risk criteria which helps to ensure that you are able to afford to repay the loan. You also need to be classified as over-indebted to qualify for debt consolidation. This means that most of your disposable income goes towards settling your debt on a monthly basis and you are struggling to keep up with repayments.
Debt consolidation can also be used as a mechanism to avoid going under debt review – a process which incurs additional charges.
What benefits are offered by debt consolidation?
- You get to pay only one instalment instead of multiple payments
- Consolidating your debt can reduce the cost of borrowing
- The process can assist the applicant to budget better
- The interest rate may be lower
- The process allows you to save on multiple fees, service charges and debit order charges. You won’t have to remember to pay multiple creditors but will only have to keep track of one payment.
- If you own property, you can apply for additional funds on your existing bond
- You are provided with access to enough money to pay off all your debts – helping you stabilise your financial situation quickly. You get a fresh start and won’t be saddled with debt for years on end.
- The process does not have a negative impact on your credit rating.
- Debt consolidation can be a simple, effective debt management tool used for when you have multiple debts and are struggling to pay them off.