What are Debt Consolidation Loans?
If you are over-indebted with multiple debts, a consolidation loan from a debt consolidation company may seem like the ideal solution.
But, Debt Consolidation Loans have high interest rates and admin fees.
Should I get a debt consolidation loan?
Let’s look at a simple example:
Thandi is in debt
Thandi cannot afford her monthly repayments. Her total owings is R250,000. With an average interest rate of 23%, it could end up costing her a total of R424,272. She currently pays R8,839 / month on her monthly repayment.
Thandi considers getting a consolidation loan
She can extend her repayment term to lower her monthly instalment.
She considers repayment periods
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.
She works out her monthly repayments
consolidation loan.
She can save around R2,070 on her monthly instalment.
She finds out the real cost of consolidation loans
R568,569
She may have saved approximately R2070 p/m in repayments, but she increased her long term capital debt by R144,324
Understanding Debt Counselling
Also known as Debt Review
Let’s say Thandi investigates alternative options to long term debt. 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 indebtedness. Companies like Debt Rescue reduce your monthly payments while legally protecting you and your assets from creditors.
Thandi has R250,000 total owings. We see that she is struggling and that R8,839 of her income goes to repayments. Instead of moving her liabilities into a single loan and paying an additional R144,324, her debt counsellor will negotiate with her credit accounts directly to legally reduce her monthly repayments.
Specialised attorneys ensure she has enough to cover her living expenses without making credit card debt or taking a personal loan each month.
Thandi got in touch with us.
Her monthly repayments were reduced from R8,839 to R5,300. And she was also able to make additional payments to her credit providers on top of her repayment plan. Debt counselling covered all her owings, not just the amount she would have gotten from a consolidation loan. In the end, she managed to improve her credit score.
Are you over-indebted? Check out our debt calculator.
| Debt Consolidation | |||
|---|---|---|---|
| Original Debt | R250,000 | Monthly Repayment | R8,839 |
| Consolidation Loan | R250,000 | Monthly Repayment | R6,769 |
| Debt Counselling / Debt Review | |||
| Original Debt | R250,000 | Monthly Repayment | R8,839 |
| Debt Counselling / Debt Review | R250,000 | Monthly Repayment | R5,300 |
If you feel you are over-indebted and would like to find out more about Debt Rescue and Debt Counselling, request a free, personalised, no-obligation debt assessment now!
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Consolidation Loans vs Debt Counselling
Debt Consolidation Loan | Debt Counselling / Debt Review |
|---|---|
| Lower monthly instalments | Lower monthly instalments |
| A good credit score is needed | A good credit score is irrelevant |
| High-Interest rates, once-off initiation fees, monthly admin fees, service charges and more | Once-off application fee, once-off restructuring fee and a small monthly aftercare 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 monthly payment (If the debt is below R300,000) | One single monthly payment |
| Debt Increases (high-interest) | Debt Decreases |
