Debt Consolidation

Find out more about how debt consolidation works and which debts you can use it for. Then have a one on one free consultation with one of our debt counsellors about how debt consolidation is the best way to pay off or clear your debt.

What is Debt Consolidation?

Debt consolidation is the act of taking out a new larger loan to pay off smaller multiple loans. The goal with debt consolidation is simply to roll all your different loans or credit card payments into one single payment. This can be at a lower or higher interest rate depending on your credit score.  Here is the deal, debt consolidation makes sense when you end up having a lower interest rate than you were paying before and shorter term.  A lower interest rate isn’t always a guarantee when you consolidate.

Before you apply for that debt consolidation loan, there are really important things you need to know. Most importantly that debt consolidation isn’t right for everyone.

WHEN SHOULD YOU NOT CONSIDER A DEBT conSOLIDATION LOAN?

• You can’t afford the new loan payments until the loan is repaid.
• You don’t clear all your debts with the loan instead you use the loan for something else.
• Your new net interest rate is higher than your current net interest rate.
• You end up paying more in total as a result of the monthly repayment being higher or the term of the agreement being longer.
• It will cost you to consolidate.  High-interest rates, once-off initiation fee, monthly admin fees, service charges, and more.
• When you really need help sorting out your debts rather than taking a new loan – our debt counsellors are able to negotiate with your creditors and arrange a manageable repayment plan.
• When the debt consolidation loan does not cater fully to your day-to-day cash flow needs.​​​​​​

Your behavior with money doesn’t change

Listen closely, most of the time, after someone consolidates their debt, the debt grows back. Why? They don’t have a game plan which is to pay cash and spend less. In other words, they haven’t established good money habits for staying out of debt and building wealth. Their behavior hasn’t changed, so it’s extremely likely they will go right back into debt.

why DEBT CONSOLIDATION WITHOUT TAKING A NEW LOAN is a better option?

When getting a debt consolidation loan doesn’t make sense our debt counsellors need to be negotiating with your creditors and arrange a manageable repayment plan on your behalf. Debt review allows you to benefit from:

• Regular action plans and tips, articles shared with our clients targeting to change your behavior with money;
• Consolidating all your debts into one, without the need to take out one bigger loan;
• All household expenses are covered. A debt consolidation loan usually does not cater fully to day to day cash flow needs;
• Interest rates can be reduced, as low as zero. This is highly unlikely when compared to an unsecured debt consolidation loan which can attract a high-interest rate.

To learn more about debt counselling, visit our debt counselling page by clicking here.

WHAT TYPES OF DEBT CONSOLIDATION LOANS are AVAILABLE?

There are two types of debt consolidation loans:

1. Secured – where the amount you have borrowed is secured against an asset e.g your home. However, if you miss repayments, you could lose your home.
2. Unsecured – where the loan is not secured against your home or other assets.  An example would be a personal loan.

Find out if you qualify for debt consolidation without taking a new loan.

The table below summarises facts about debt consolidation loan vs debt review. But here’s the deal, debt consolidation promises one thing but delivers another. Here’s why you should skip debt consolidation and opt instead to follow a debt review plan that helps you actually get rid of debt fast.

How to Choose the Right Debt Consolidation Strategy

1. Assess Your Debt: Start by understanding the total amount you owe, including interest rates and monthly payments.
2. Explore Options: Look into different consolidation methods like personal loans, balance transfer credit cards, or home equity loans.
3. Compare Interest Rates: Ensure the new consolidation loan has a lower interest rate than your current debts.
4. Read the Terms: Be mindful of loan terms, fees, and any penalties.
5. Plan Your Payoff: Have a clear strategy for paying off the consolidated loan.

Debt Consolidation: Is It Right for You?

While debt consolidation can be a smart financial move, it's not a one-size-fits-all solution. It's most effective for those who:

• Have a good credit score to qualify for low-interest rates.
• Are disciplined enough to avoid accumulating new debt.
• Have a steady income to manage the new loan payments.

Potential Drawbacks

1. Longer Payment Terms: Some consolidation loans may stretch out payments over a longer period, which could mean paying more interest over time.
2. Secured Loans Risk: If you use a secured loan (like a home equity loan), your assets may be at risk if you can’t make payments.
3. Temporary Credit Impact: Initially, applying for a new loan might impact your credit score.

Final Thoughts

Debt consolidation can be an effective tool for managing and reducing debt. However, it requires careful consideration and discipline. Always assess your financial situation, explore various options, and make an informed decision. Remember, consolidation is not about eliminating debt but managing it more effectively