Struggling to keep up with your monthly repayments? Perhaps you should consider debt consolidation, especially if you’re burdened by multiple loans. Before taking the plunge, learn what debt consolidation means, including the pros and cons.

What is debt consolidation?

Debt consolidation is when all the debt that you owe is combined so you have one monthly repayment. If you qualify for this option, an accredited financial institution (e.g. your bank) can consolidate your debt for you.

Reputable debt institutions may also be able to negotiate with your creditors on your behalf. Once it’s approved, your debt will be managed as one loan.

This means:

• You’ll only be paying a single (more affordable) amount monthly, rather than multiple repayments.
• In most cases, store card debt, credit card debt, personal loans, student loans and even medical debt are consolidated.

When do you qualify for debt consolidation?

Not everyone is eligible for debt consolidation, so it’s important to figure out if you qualify first. Investigate whether:

• you struggle to cover your expenses and other living costs after debt repayments
• you have multiple forms of debt but still maintain a good credit score
• you prefer fixed payments
• you can afford to pay your consolidated debt repayments

The pros

• It’s easier for you to budget with one repayment instead of many.
• Consolidating your debt often means a longer repayment time, which decreases your monthly instalments.
• Your credit score may initially be impacted, but over time it may improve with steady repayments.
• You’re likely to get a lower interest rate if your debt is consolidated. This depends on your credit score and the repayment terms.

The cons

• There’s no guarantee you’ll solve your debt issues with consolidation. You’ll have to stick to your repayments and avoid creating new debt for it to work successfully.
• If you have a negative credit score, you may have to pay a higher interest rate initially.
• There may be fees involved in debt consolidation (e.g. balance transfer fees, which are charged when debt is moved from one place to another).

How to consolidate your debt

All debt considered for consolidation is monitored by the South African National Credit Regulator. Certain banks offer a debt consolidation loan option and some financial institutions can help you to get the ball rolling. They may even help you to negotiate your repayments with your creditor.

Find more debt-related tips in this blog article:

• Your 4-step plan for paying off debt