5 Common Mistakes to Avoid When Consolidating Debt

Managing multiple debts can quickly become overwhelming, especially when juggling different payment dates, interest rates and account balances. For many South Africans, debt consolidation offers a structured way to regain control by combining several debts into one manageable loan. This financial strategy simplifies repayments and can reduce overall costs if handled correctly. However, consolidation is not without its challenges. Without careful planning and financial discipline, it can lead to further debt rather than relief.

Key Takeaways

• Stay focused on becoming debt-free: Avoid taking on new credit, track your progress, and stick to your repayment plan until your loan is fully paid off.
• Debt consolidation only works with discipline: Combining debts can simplify your finances, but lasting success depends on changing your spending habits and staying consistent with repayments.
• Do your homework before applying: Comparing lenders, interest rates, and loan terms can help you avoid hidden fees and choose the best consolidation option for your situation.

Mistake 1: Not Fully Understanding How You Got Into Debt

Even if you manage to clear your debt, you could end up back in the same position if you don’t learn what caused it in the first place. Without taking time to understand how it happened, you might repeat the same money mistakes again.

Many people see debt consolidation as a quick fix because it rolls everything into one payment, making life feel easier. But if you keep spending the same way as before, the problem doesn’t really go away. You need to look closely at how your debt built up and why it became difficult to manage.

For many South Africans, debt consolidation involves quite a large amount of money, often in the tens of thousands of rand. It usually takes time to reach that level of debt and just as much time to realise that repayments have become unmanageable. When you consolidate, it’s important to see it as a serious step and reflect honestly on how things got out of control.

Example

Imagine you’ve built up R80 000 in credit card and store account debt from a mix of groceries, online shopping, and small luxuries over time. You decide to consolidate everything into a single loan with a lower interest rate, hoping it will make things easier. While your new monthly payment is smaller, you haven’t changed your spending habits. Before long, you’re back using your cards again, adding more debt on top of your consolidation loan.

The Fix: Improve Your Money Management Habits

• Reflect on your spending habits. Think about what led you into debt in the first place and what needs to change to keep it from happening again.
• Identify your weak spots. Are you buying things on impulse online or using your credit card for small daily costs like coffee or lunch? Spot the habits that quietly drain your money.
• Track your expenses. Go through your bank statements, receipts, and credit card bills to see where your money really goes each month. Most people are surprised once they do this.
• Create a realistic budget. Set clear limits for different spending categories and make sure you can comfortably stick to them.
• Stay consistent. Treat your budget as your guide. Review it regularly to avoid slipping back into old spending habits.

Mistake 2: Not Researching Your Options

There’s more than one way to consolidate debt, and each option works differently. You might use a personal loan, a balance transfer credit card, or even a debt management plan. Each choice comes with its own advantages and risks, so it’s important to take time to understand how they work before choosing one. Failing to do your research could leave you with extra fees or higher interest costs later on.

Example

Imagine you take up a credit card balance transfer that promises a 0% interest rate for six months. It sounds ideal, but you miss the fine print that includes a 4% transfer fee and a much higher rate once the promotion ends. By the time the offer expires, you’re back to paying steep interest and possibly owing more than before.

The Fix: Compare and Understand Every Option

• List all your current debts. Write down the total amounts, interest rates, and monthly repayments so you can see the full picture of what you owe.
• Compare available options. Look at personal loans, balance transfers, and debt management plans. Check their rates, terms, and fees carefully.
• Use trusted platforms. Services like Arcadia Finance let you compare offers from reputable, NCR-registered lenders all in one place.
• Speak to your creditors. Ask if they can lower your interest rate or give you short-term relief through a hardship plan.
• Take your time to decide. Don’t rush into the first offer that looks good. Choose the option that will genuinely help you manage your debt, not add to it.

Mistake 3: Consolidating the Wrong Debts

Not every debt should be combined into a single loan. If you consolidate debts that already have low interest rates, you might end up paying more over time. It’s important to be selective about which debts to include so that consolidation actually saves you money rather than costing more.

Example

Sipho decided to roll his student loan, which had a 4% interest rate, into a credit card balance transfer with a 0% introductory offer. At first, it looked like a great deal, but he overlooked the 3% transfer fee and the much higher rate that applied once the promotion ended. Within a few months, the costs added up and he realised he would have paid less by keeping the original loan separate.

The Fix: Be Strategic About What You Consolidate

• Focus on high-interest debts. Target store accounts, payday loans, and credit cards that charge high rates first.
• Leave low-interest loans out. Keep cheaper debts, like student loans or car finance, separate if they already have manageable terms.
• Do the maths. Compare total repayment costs, including fees and interest, before combining any debts.
• Prioritise expensive debts. Pay off the highest-interest accounts first to save more in the long run.
• Explore repayment strategies. Methods like the debt snowball or avalanche approach can help you tackle multiple debts effectively without unnecessary consolidation.

Mistake 4: Continuing to Accumulate Debt

One of the biggest mistakes people make after consolidating their debt is continuing to swipe their credit cards or take out new loans. This completely defeats the purpose of consolidation and can leave you with even more to repay than before.

Example

After consolidating several store and credit card balances into one loan, Thandi felt relieved to finally have one manageable monthly payment. But a few months later, she started using her credit cards again for online sales and eating out. Within a year, she was back in the same position, paying off a consolidation loan and new credit card debt.

The Fix: Stay Committed to Paying Off What You Owe

• Put your credit cards away. If possible, close or freeze accounts you don’t need to remove temptation.
• Stick to your budget. Follow the spending plan you created and avoid impulse purchases.
• Focus on one goal. Your priority is to pay off your consolidation loan completely before taking on any new credit.
• Build better habits. Find affordable ways to manage your lifestyle, like packing lunch or using loyalty discounts instead of borrowing again.
• Track your progress. Seeing your debt go down each month helps keep you motivated to stay debt-free.

Mistake 5: Missing Payments on the Consolidation Loan

Missing payments on your new loan can undo all the progress you’ve made through debt consolidation. Even one missed instalment can lead to penalty fees, added interest, and a negative mark on your credit report. Over time, it can make your financial situation worse instead of better.

Example

After combining her store and credit card debts into a single consolidation loan, Naledi felt confident about staying on top of her repayments. But when unexpected car repairs came up, she missed a few payments. The late fees and extra interest made it harder to catch up, and her credit score dropped. What started as a step toward financial relief quickly became stressful again.

The Fix: Stay Consistent with Every Payment

• Set up debit orders or reminders. Automate your payments so you never forget a due date.
• Keep an emergency fund. Even a small savings buffer can help you cover unexpected costs without missing instalments.
• Track your repayment progress. Regularly check your loan balance to see how much you’ve paid and how far you’ve come.
• Communicate with your lender. If you know you’ll miss a payment, contact them early. Some lenders can offer short-term relief or adjust your due date.
• Stick to your budget. Protect your repayment money by cutting unnecessary expenses and keeping your financial goals in focus.

How to Consolidate Debt the Right Way

Consolidating debt can be one of the smartest financial moves you make, but only if it’s done with care and proper planning. The goal is not just to simplify your payments, but to create a lasting solution that helps you stay debt-free. Here’s how to do it the right way:

• Assess your full financial situation: Before applying for a consolidation loan, calculate exactly how much you owe and list all your current debts with their interest rates. This gives you a clear picture of what needs to be combined and whether consolidation will truly save you money.
• Check your credit score: Your credit profile affects the type of loan you can qualify for and the interest rate you’ll get. A healthy credit score often means better terms and lower costs.
• Compare offers from reputable lenders: Take time to compare rates, fees, and repayment terms. Platforms like Arcadia Finance make this process easier by connecting you to multiple trusted lenders that are fully registered with the National Credit Regulator (NCR).
• Understand all costs involved: Look beyond the monthly repayment amount. Check for service fees, initiation fees, and total interest payable. Make sure the new loan reduces your total cost, not just your stress level.
• Avoid taking on new credit: Once your debts are consolidated, avoid using credit cards or taking out new loans. The aim is to close the gap, not create new ones.
• Stick to a realistic repayment plan: Choose a repayment term that fits your budget without stretching it too far. Set reminders or debit orders so you never miss a payment.
• Track your progress and celebrate milestones: Watching your debt balance drop month after month can keep you motivated. Celebrate small wins, like paying off a big chunk of your balance, to stay on track.

Conclusion

Debt consolidation can be an effective financial solution for South Africans looking to simplify multiple repayments and reduce financial pressure. By combining debts into a single, manageable loan, borrowers gain structure and consistency in their repayment plan. However, it is vital to approach consolidation with caution and discipline. Understanding interest rates, loan terms, and the implications of extending repayment periods can prevent future financial strain. With responsible budgeting, improved credit management, and the support of NCR-registered lenders, debt consolidation can pave the way towards long-term financial stability and greater peace of mind.

Frequently Asked Questions