Is debt consolidation the best option? | Fin24
 
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Is debt consolidation the best option?

Dec 01 2015 07:55

A Fin24 user wants to know if debt consolidation is the best option for her to refinance her home.

She writes: "I seek advice on debt consolidation please. I need to discuss options on refinancing my home to consolidate debt and ultimately increase cash flow. I have options on what I would like to do and I would appreciate any guidance please."

Renee Marais NCRDC1780 Independent Debt Counsellor advises:

Debt consolidation means that you transfer your debt from one type of account to another or from one creditor to another.  This will not reduce the debt but just move it around. It will mean that you will only pay one instalment for the total debt and not each and every smaller creditor.

In some cases it might even cost you more as you will have higher interest depending on the type of credit agreement and the typical costs for new credit will apply. Any consolidation will result in a new credit agreement.

In my opinion as a debt counsellor, which is by no means the only one, there are other options to consider before a consolidation loan. The old adage holds true: no one has ever borrowed themselves out of debt.   

One of the ways of getting out of debt faster is to start paying off the smaller more expensive credit first. It might involve the tightening of the belt and less spending for a while but in this case you will actually pay off the debt and free up some cash.  Possibly the restructuring of your budget is all that is needed and that can be done by a reputable suitably registered debt counsellor. Find one on http://www.ncr.org.za

If your problem is cash flow, it might mean that you are not yet over indebted but experiencing problems in satisfying your debt obligations and a debt counsellor can be useful to assist. The Act in section 86(7)(b) makes provision for a debt counsellor to assist the reduction of monthly payments over a longer period of time to assist in the repayment of debt to free up some of your income to pay for living expenses.  This might just be one or two of your credit agreements. This is not formal debt review and typically the term of the reduced payment will be less than 12 months and would not include the bond or vehicle payments.   

Please find a reputable debt counsellor (preferably someone close to you with whom you can make a face to face appointment) to discuss the options.  Also feel free to get a second opinion. Debt restructuring in whatever form it takes is not designed to finance your lifestyle and will involve the reduction of monthly expenses.

ALSO READ:

 Pros and cons of debt consolidation

Debt consolidation can work

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money  |  money clinic  |  debt
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