Consolidation of debt is a means of paying all of your accounts with one reduced instalment which is affordable and in line with your budget.
There are 2 ways of consolidating namely:
1. Obtaining a personal loan to settle all your short term debt and you only have one instalment to pay back on the personal loan. This is called a consolidation loan. To qualify, you need to have a clean credit record, no unpaid debit orders in the last 3 months and not be in arrears with any of your accounts. The banks also have a scoring system whereby you need to qualify in terms of affordability. In other words, you should have sufficient disposable income to cover the instalment of the new personal loan or you should not be over indebted. Also ensure that the interest rate on the new loan is lower than your current interest rates on the short term debt that you currently have. Some banks do not settle revolving credit like your credit cards and store cards, which means that a consolidation loan is not always to your benefit. If revolving credit is not settled, you could end up with more debt than what you currently have. A quick way of checking your affordability: take your net income and subtract the living expenses like rent, fuel, school fees, food etc. The balance is what you should have to cover the monthly instalments on your short term debt. If this is not sufficient to cover all instalments, it means that you are over indebted.
2. The second way of consolidating your monthly instalment is the process of debt review. If you are over indebted and have arrears on your accounts, your best solution would be debt review. This is a formal process legislated in the National Credit Act, whereby your debt counsellor will take all of your accounts given to you by a registered credit provider and negotiate a lower interest rate on these accounts. This in effect will reduce your monthly repayments on your accounts. All assets (Property and vehicles) can be included under debt review as well. The Debt Counsellor will assist you with a budget to work out your essential living expenses and calculate an affordable instalment, acceptable to the credit providers. You will then pay back one instalment and the Debt Counsellor distributes this to all of the creditors via a National Payment Distribution Agency. On this process you end up with one reduced instalment covering all of your accounts and is in line with your affordability.
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