When in financial difficulty, there are different strategies to follow to get out of trouble. Mostly they take time and effort. Debt Consolidation is one such strategy or option to consider when in financial difficulty.
The meaning of Debt Consolidation.
To consolidate your debt means simply to throw many smaller liabilities or accounts together and then to take out one large loan to settle all smaller liabilities at once. The larger loan is then paid of either over a longer period or at a lower interest rate or both, resulting in a lower monthly commitment which should bring some relief to your financial situation.
A good place to start looking for such a loan is at your bank. There are many other financial institutions which will provide you with consolidation loans. Make sure you deal with a properly registered institution. Check with the NCR (National Credit Regulator) that they are registered. One way to distinguish legitimate companies from fake institutions is that legitimate companies will give you the option to finance the initiation fees over the period of the loan as opposed to insisting on you paying upfront before they generate the loan.
Pros and cons of Debt Consolidation
Debt consolidation should result in a reduced monthly payment, otherwise it is not necessarily a worthwhile exercise. So the good thing about debt consolidation is clearly having to pay less per month. The counter side to paying less could well mean that you will pay less per month but for a longer period, thus getting out of debt later. However, paying less interest, but over a longer period, might also mean you actually pay more in total than you would have paid before consolidating your debt. Less per month – more in total.
Debt Consolidation is not the same as Debt Review
Debt Review is a way for a consumer to get protection from his or her creditors with the help of a debt councillor. When you are under debt review, you make a single payment monthly to a company who negotiates an affordable instalment amount on your behalf with your creditors. They charge a service fee for their efforts. Assets like your house and car are protected and cannot be taken back or repossessed as long as you stick to the payment plan. Make sure you are dealing with a reputable company as there are many fraudulent “loan companies” operating on the internet prowling on vulnerable people. Make sure the company is registered with the NCR and check with the NCR that they are registered and still in business.
Debt review is described and governed by The National Credit Act, 2005 (Act No. 34 of 2005) and the National Credit Regulator provides for the general regulation of the Act pertaining to debt re-organising.