debt consolidation

Do you have multiple loan repayments that you cannot manage? Do you have several loans that leave you with little to no money at the end of each month? You may find it very easy to overlook your repayments to your creditors each month. With different loans and varying loan terms, you can easily mismanage your finances and possibly hurt your credit score. The costs may increase from penalty fees for late payments to paying multiple lenders monthly. Do you need a solution to reduce overall loan costs and save time? Debt consolidation may be the solution your looking for.

What exactly is debt consolidation?

So what exactly is a debt consolidation loan? To put it simply, think of debt consolidation as one large loan. This loan will cover the costs of all the previous loans you have taken out prior. So what are the benefits of this type of repayment plan? In this type of repayment structure, you have the benefit of only having to pay one loan. Additionally, this will also lower your monthly instalments. The creditor who will consolidate your debt will consider all your loans. They will then join all these loans into a singular yet larger loan. Additionally, this can also reduce your overall costs each month. These are the interest rate, monthly fees/admin fees, and your monthly instalments.

Why consolidate your debt?

Debt consolidation is ideal for those experiencing financial hardship and failing to honour their loan repayments. Those who have several loans to repay cannot manage all their accounts. Debt consolidation is a great way to restructure and possibly reduce monthly instalments. This is especially true for those who have several repayments to multiple accounts. With lower monthly instalments and interest rates, they could save additional funds. When one uses debt consolidation, they may find their monthly loan repayments more affordable. If you find yourself in such circumstances, debt consolidation may be the right solution.

How to qualify for debt consolidation?

Credit providers must verify specific requirements before offering you a loan. They will usually require three months’ worth of bank statements and perform what is known as a credit check. Additionally, they will assess your monthly income and any additional debt alongside your credit rating. Those with a respectable credit score will usually be offered a lower interest rate. However, those with a lower credit score may be subject to higher interest rates. With a lower credit score, creditors will deem you as a higher risk regarding loan repayment.

Which accounts can be consolidated?

When it comes to the accounts you wish to consolidate, namely, any loans that are in the form of unsecured loans can be reduced. You may still be able to consolidate your debt despite failing to honour your repayment terms. This can also be said for any obligation reported and sent to collections. Additionally, fuel cards, credit cards, clothing, or shopping accounts may still be consolidated. Though unfortunately, secured loans which make use of collateral are not possible.

Types of debt consolidation

Credit Card Balance Transfer

When you apply and receive a new credit card. Any existing balances are transferred to the new card. The results are a single payment, lower monthly credit card repayments, and possibly a reduction of costs due to a lower interest rate, which will depend on the type of credit card you qualify for.

credit card balance transfer

Student Loan Consolidation

Combining several student loans into a single repayment plan. This will simplify monthly payments. Student loan consolidation involves refinancing government and private student loans into a personal loans.

student loans debt consolidation

Home Equity Loan

It is a secured loan that uses a home’s equity as collateral. The loan is then used to pay off any existing debts. A loan as such will offer a much lower interest rate.

home equity loan

Comparison between debt consolidation and debt settlement

In terms of debt settlement, debt relief companies will reach your creditors to negotiate the payment of an account. When this is done, they will usually charge a fee upon negotiating a settlement of the account. This is calculated as a percentage and usually charges a fee between 15% and 20%.

The debt relief company may try to calculate an amount payable to your creditor. This amount will usually be lower than the total amount due. Despite these negotiations, you are still liable to make your monthly repayments into such accounts until the account is settled. This is especially true during the negotiation phase of the settlement. When settled, the debt relief company will inform you when to cease your payments on the settled account. However, there is no guarantee that they will be able to settle all your accounts. The key differences between debt settlement and debt consolidation are the use of a debt settlement company. With debt consolidation, you will agree with the creditor without using a third party.

About Arcadia Finance

Secure a loan effortlessly with Arcadia Finance. Our platform allows you to complete a free application and receive loan offers from up to 10 lenders. We ensure the trustworthiness and compliance of all our lending partners with the regulations of the National Credit Regulator of South Africa.

How consolidating your debt affects your credit rating

The effect of a debt consolidation loan will initially lower your credit score. However, this is usually only temporary, prior to your application for a debt consolidation loan. Credit providers will access your credit score and perform a credit check which may lower your credit score. However, consolidating several accounts into one loan will eventually improve your credit score in the long term. This is namely due to lower credit card usage.

When looking to improve your credit score, you should always pay your accounts promptly. Creditors make use of your payment history for your accounts. This will significantly determine and influence your credit score. Your past may affect your score, including late payments, length of credit, new credit, and additional debts.

How much do you need?
*Representative example: Estimated repayments of a loan of R30,000 over 36 months at a maximum interest rate including fees of 27,5% APR would be R1,232.82 per month.

Loan amount R100 - R250,000. Repayment terms can range from 3 - 72 months. Minimum APR is 5% and maximum APR is 60%.