Debt consolidation can be done in a number of ways . The basic idea is to replace some or all of your debt with a single debt.  A single regular payment is easier to manage. You could end up paying less due to a lower interest rate.

Important facts about debt consolidation

Pay back less or lower repayments but never both.

If credit cards make up a significant percentage of your debt consolidating may increase your repayments.  Credit card minimum repayments pay off the amount over a term of 7 to 11 years. Most personal loans have a term of 5 years. To repay the same amount of debt over a shorter period of time, even with a lower interest rate, higher repayments will be required.  Less in total will be repaid.

Consolidating debt into a home loan will generally result in lower repayments. This is due to the lower interest rate and the longer term (25-30 years). Extending the term of the loan from 5-11 years (credit cards and personal loans) will dramatically increase the total amount you repay.

Unsecured personal loan.

When most people think about debt consolidation they think about unsecured personal loans. One large personal loan is taken out to consolidate a number of smaller loans such as credit cards and payday loans. The money from the loan is used to pay out your creditors.

The main benefits are: a lower interest rate, one regular repayment, and a shorter term. If you are consolidating credit cards the interest is likely to be significantly higher than a personal loan. Depending on the difference between the credit cards and the new loan, there may be an overall saving as well as being able to better manage a regular monthly payment.

To get a loan you would need to:

  • Have a perfect credit history;
  • Have been in the same job for more than 1 year;
  • Have less than $50 000.00 in debt;
  • Be up to date with all your debts (not in hardship either); and
  • Generally pay an application fee.

If you’re inelligible for a debt consoldiation loan you may be elligible for other debt management options like personal insolvency agreements which provide a way of negotiating a reduced payout figure for those owing large amounts of money.  If you can’t afford any repayments bankruptcy may be an option.

CAUTION: If spending is a problem, a debt consolidation loan may make things worse.  We regularly see people who, after getting a debt consolidation loan, continue to use their credit cards.

N.B: Debt Mediators does not provide loans. This information is provided for information purposes only.