Debt Consolidation
Debt consolidation can seem like an attractive option to managing your debt. Basically what happens is that a company pays off all your debt. Then, you pay them back at an agreed interest rate. There is one possible problem with this solution. If you are using a debt consolidation loan to pay off your personal loans, credit cards and clothing accounts, these accounts remain active unless you close them. That means that you can effectively create additional debt on the accounts you have consolidated. This will effectively double your debt. Obviously, this is very counter-productive and will only create more financial woes for you. If you have the discipline to close all the accounts upon approval of your debt consolidation loan, then it may be the way to go. One of the main things you need to do when researching companies that would consolidate your debt for you is to check on their reputation. Many unscrupulous companies exist and they simply want your money. Make sure to research which company will give you the best interest rate. For instance, it’s worthless consolidating a personal loan with an interest rate of 19%, a credit card of 17% and an overdraft of 18% with a consolidation loan set at 22%. You will end up paying so much more and wasting money you could have put to much better use.
Another option is debt counseling. The National Credit Act gives you the right to apply for debt counseling. There are quite a few companies in South Africa that offer this service, but I recommend researching them properly before you enter into an agreement with them. In accordance with the Act, your debt counselor will request a budget from you. This will include your income plus additional income. Deduct ALL monthly payments and expenditures. This includes fuel, food, day to day living…EVERYTHING. You will also need to provide all the applicable contract numbers and outstanding balances for your debts. Based upon this information, your debt counselor will draw up a repayment plan and present it to your creditors. Once everyone has agreed on the terms, a monthly amount will be withdrawn from your account, much the same as any other debt repayment. The benefit of going this route is that you won’t get blacklisted. You will be marked at the Credit Bureau as being under credit counseling and you will not be able incur any additional debt. When your term is complete and your debt is paid off in full, your credit will be reinstated and you will essentially start afresh without a huge black mark on your credit profile.