Should you get a debt consolidation loan?

Find out the real cost of debt consolidation loans

Why are debt consolidation loans dangerous?

Debt Consolidation Loans have high interest rates and admin fees. And the higher your loan and longer your repayment term, the more money you pay the bank in interest.

Let’s look at a simple example:

1

Thandi is in debt

All her hard-earned money is going into debt repayments.

She owes R650,000 with interest and earns R25,000 per month after tax. Her debt repayments per month are R21,000.

2

Thandi gets a consolidation loan

She notices most banks only offer loans from R250,000 – R300,000.

It doesn’t take care of all her debt, but she decides to consolidate some of it with a consolidation loan of R250,000.

3

She decides on a repayment period

She pays back the loan over the maximum repayment term of 84 months (7 Years) at a yearly interest rate of 21.7%.

To obtain the loan, she needs to pay a once-off initiation fee of R1207,50 as well as an ongoing monthly service fee of R69.

4

Her monthly repayments are calculated

Thandi now pays R6,769 towards her consolidation loan and an additional R10,000 to cover the R400,000 in remaining debt repayments.

5

She finds out the real cost of consolidation loans

How much did Thandi end up paying in total for her R250,000 debt consolidation loan including interest?

R568,562

Rates & Fees

You want
Loan amount (R)5 00025 00050 000100 000250 000
Term (months)Credit facility12244884
You pay
Interest rate (%)20.7512.9 - 27.7512.9 - 27.7514.2 - 27.416.3 - 21.7
Credit life of insurance R/1000 per monthn/a2.54 - 4.52.54 - 4.52.54 - 4.52.54 - 4.5
Once-off initiation fee (R)0 - 649.751 207.501 207.501 207.501 207.50
Monthly service fee (R)35 - 6969696969
Your repayment
Monthly repayment (R)5 155 - 5 8162 446 - 2 6652 575 - 3 0163 002 - 3 8805 549 - 6 769
Total repayment (R)5 155 - 5 81629 354 - 31 97661 800 - 72 380144 113 - 186 227466 130 - 568 562

 

*Actual rates and fees of a well-known bank in South Africa offering consolidation loans (Jan 2019)

Her new debt of R250,000 was paid towards the R650,000 leaving a total debt of R400,000, but now she also created a new additional debt of R318,562. Her new total debt with interest after paying her R250,000 debt from her consolidation loan is now:

R718,562

And she will be paying this off for the next 7 years. This is the big reason why banks want you to take out consolidation loans. Interest means profit and that’s what banks survive off.

Of course, there may be times when consolidation loans make complete sense. But it is not the answer to a debt problem. So, what is?

Understanding Debt Counselling

Become debt free with Debt Rescue!

Let’s say Thandi checked the numbers and decided that a consolidation loan was not the answer to her debt problems. She finds out about a process called debt counselling.

Debt counselling is a service regulated by the NCR to ensure fair practice to those who are struggling to live due to debt. Companies like Debt Rescue reduce your monthly payments while legally protecting you and your assets from creditors.

Let’s look at Thandi’s R650,000 total debt and R25,000 monthly income. We see that she is struggling and that R21,000 of her income goes to debt repayments. Instead of moving her debt around and paying additional interest, her debt counsellor will negotiate with her creditors directly to legally reduce her monthly repayments. And in many cases, the debt counsellor can also lower interest rates.

Specialised attorneys ensure she has enough to cover her living expenses without using credit each month and assets like her car are protected.

Thandi got in touch with Debt Rescue who took care of everything.

Her monthly debt repayments were reduced from R21,000 to R10,100. And she was also able to make additional payments to her credit providers on top of her repayment plan. Debt counselling covered all her debt, not just the amount she would have gotten from a debt consolidation loan.

She paid off all her R650,000 debt in 5 years

Request a free, personalised, no obligation debt assessment now!

Debt ConsolidationDebt Counselling
Total Debt: R718,562Total Debt: R650,000
Monthly repayment including fees: R16,769Monthly repayment including fees: R10,100
Paid off in 7 yearsPaid off in 5 years
Free online assessment

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Consolidation Loans vs Debt Counselling

Consolidation LoanDebt Counselling
Lower monthly instalments
Lower monthly instalments
Good credit score needed
Good credit score irrelevant
High-Interest rates, once-off initiation fee, monthly admin fees, service charges and more
Once-off application fee, once-off restructuring fee and a small monthly after care fee
Covers debt up to R250,000 – R300,000
Covers an unlimited amount of debt
No legal protection of assets
Legal protection of assets
One single payment monthly
(If debt is below R300,000)
One single payment monthly
Debt Increases (high interest)
Debt Decreases

Have a question about Debt Counselling?

Have a burning question? Take a browse through our most frequently asked questions to learn more about Debt Review

Debt Review cannot make you lose your home or your vehicle.

It can however save your home and vehicle, but this will obviously depend on your unique circumstances. Factors that will determine this will include the following:

  • Have you received a Section 129 letter from your Credit Provider, and if so, how long ago?
  • Have you been served with a summons in respect of your mortgage bond or vehicle finance?
  • How many vehicles do you have and what are they used for?
  • Are you giving your full cooperation in the program?

You will immediately experience the relief that Debt Review offers.

Within the first 5 days, we will work out a provisional repayment plan for you which you will be able to afford. In terms of the provisional repayment plan, you will make a single payment to a Payment Distribution Agency, who will distribute the money according to your plan. During the first 60 working days, your Credit Providers will not be allowed to implement action against you. During this time we will prepare your final repayment plan.

Our fees are regulated by the National Credit Regulator and are very reasonable, as the idea is to get you out of debt. The fees will be explained to you in detail once you contact us. The important thing to remember here is that our fees and disbursements are included in your affordable debt repayment plan.
Q
Will I lose my house or my vehicle when I am placed under Debt Review?

Debt Review cannot make you lose your home or your vehicle.

It can however save your home and vehicle, but this will obviously depend on your unique circumstances. Factors that will determine this will include the following:

  • Have you received a Section 129 letter from your Credit Provider, and if so, how long ago?
  • Have you been served with a summons in respect of your mortgage bond or vehicle finance?
  • How many vehicles do you have and what are they used for?
  • Are you giving your full cooperation in the program?

You will immediately experience the relief that Debt Review offers.

Within the first 5 days, we will work out a provisional repayment plan for you which you will be able to afford. In terms of the provisional repayment plan, you will make a single payment to a Payment Distribution Agency, who will distribute the money according to your plan. During the first 60 working days, your Credit Providers will not be allowed to implement action against you. During this time we will prepare your final repayment plan.

Our fees are regulated by the National Credit Regulator and are very reasonable, as the idea is to get you out of debt. The fees will be explained to you in detail once you contact us. The important thing to remember here is that our fees and disbursements are included in your affordable debt repayment plan.

Thank you!

We look forward to the opportunity to get you debt-free!