People don’t like to admit that they have debt, but the truth is, most South Africans do! It’s not easy to make ends meet, especially with rising costs and a salary that doesn’t quite keep up. Taking out more debt to deal with your current situation isn’t a good strategy on its own, but you can take advantage of a consolidation loan as part of your bigger plan to pay off debt and change your financial situation.
What is a consolidation loan?
Imagine having two store accounts, a payday loan and some scary credit card debt. Each of these will have different interest amounts being charged (some super high rates) and each requires a different payment on a different day of the month. Not only can it be a bit tricky to keep track of it all, you could be paying far too much in interest and not actually making any headway in paying off the debts.
This is where debt consolidation loans can really help!
A consolidation loan is a single loan that replaces all your existing loans (within certain constraints). So if your total debts in the above examples come to R60 000, you could take out a new loan for that amount and pay off all the individual debts. You then just need to deal with one institution and one payment amount. You can also lower the monthly payments by choosing a term that suits you and you can often save money with a lower overall interest rate.
Tips to pay off your debt
It’s very tempting to take out a consolidation loan for more than you need, or over a longer period to minimise the monthly payments. That may not always be a good idea as you should ideally be paying off your debt as a matter of priority. Personal circumstances are obviously different for everyone, but you should choose wisely.
If you’re serious about taking charge of your debt situation and improving your finances, you’ll unfortunately need to cut back wherever you can and spend a few months really focussed on your financial goals.
Here are some tips to help you along the way:
- Set up one or two financial goals
- Implement a budget
- Track your expenses
- Once you have paid off existing store cards, cancel the accounts to avoid getting into the same situation again
- Cancel your credit card and close any existing loan accounts as soon as your dues are paid
- Use cash wherever possible
These may seem a little simplistic and you may not quite be able to make it through the month without a credit card. The ultimate financial rule to live by though is to spend less than you earn. This may not be possible while you’re paying off debt, but you need to track your expenses and really prioritise your spending to ultimately improve your finances.
How to apply for a debt consolidation loan
It’s quite easy to consolidate debt, especially with African Bank. You can apply online and only need your ID, proof of income and your latest bank statement reflecting three salary deposits. They will then do the necessary credit checks and guide you through the process. Do be sure to ask questions so that you fully understand the terms, interest charged and monthly instalments due. Be sure to know your rights when taking a loan.
Start your financial plan
Managing your money better and working towards paying off your debt doesn’t need to be complex — a financial plan can simply start with a small goal. As you focus on your finances, you can expand your plan, create new goals and even change your goals along the way.
The important part is just to start!
Start empowering yourself by reading books and blogs, follow trusted financial gurus and find those who inspire you to do better.
Taking control of your finances may be hard at first, but it’s an incredible journey of learning and making decisions that will ultimately improve your future!