Debt Consolidation in South Africa: Simplify Your Finances Today

A lot of people search for debt consolidation looking for a way to solve their debt problems. Since 2013, it has been officially known as Debt Counselling, however it is still often referred to as Debt Consolidation. People also have the ability to take out a debt consolidation loan but this relies on you having a good credit score and a firm history of paying back debts. The reality in South Africa is that this is not the case for most clients and therefore not a solution that is viable for those seeking debt relief.

Debt consolidation in South Africa can have both positive and negative effects on your credit score, depending on how it’s managed. Here are some key points to consider:

Negative Effects:

• Hard Inquiry: When you apply for a consolidation loan, lenders usually do a hard inquiry on your credit report. This can knock a few points off your score temporarily.
• New Account: Opening a new credit account can lower the average age of your credit accounts, which might not look great to lenders and can impact your score.
• Credit Utilisation: If you use a balance transfer credit card for consolidation, a high balance on that card can raise your credit utilization ratio, which could hurt your score.

Positive Effects:

• Lower Credit Utilisation: If you pay off high-interest credit cards with your consolidation loan, you might lower your overall credit utilization ratio. This can give your score a nice little boost.
• Improved Payment History: If you make your payments on time with the new loan, it can help your payment history, which is a big part of your credit score.
• Simplified Payments: Consolidating debts means you’re only dealing with one loan instead of several. This can make it easier to keep track of payments and reduce the chances of missing one, which is great for your credit score.

So, while debt consolidation might make your credit score dip a bit at first, if you stay on top of your payments and don’t rack up new debt, it can actually help improve your score over time. Just keep an eye on your spending, and you’ll be on the right track!

“Over-indebted” means that a person has taken on more debt than they can handle. This usually happens when someone has too many loans or credit card bills and struggles to pay them back on time. As a result, they might feel stressed about their finances and find it hard to cover their regular living expenses. Basically, being over-indebted means you’re in a tough spot with your money because your debts are too high for you to manage comfortably.

You might be over-indebted if your monthly expenses and debt payments add up to more than your income. This means you’re having a hard time covering your living costs while paying back your lenders. Our registered debt consolidation agents can help you figure this out by doing a budget assessment.

Even if you earn a high salary, you can still be over-indebted if you have taken on too many loans that you can’t afford to repay. If you find yourself in this situation, going through a debt review and joining a debt consolidation program could be a good way to take control of your finances again.

You’re not alone—many people in South Africa spend up to 75% of their take-home pay just to keep up with their debt.

Signs that you might be over-indebted:

• A big part of your income (over 30%) goes towards paying off debts.
• You often miss payments or pay late on loans or credit cards.
• You use credit cards or loans to pay for everyday things like groceries or bills.
• Your credit card or loan balances keep increasing instead of going down.
• You feel stressed or worried about money and how to meet your financial obligations.
• You receive constant calls or letters from creditors about overdue payments.
• You have little or no savings for emergencies or unexpected expenses.
• You only make the minimum payments on credit cards or loans, which makes it take longer to pay them off.
• You notice your credit score dropping because of high credit use or missed payments.
• You have trouble getting approved for new loans or credit due to your existing debts.

Debt Consolidation can affect your house and car in a few important ways. First, it can help protect your home from foreclosure and your car from repossession by working with your creditors to create a payment plan that you can manage. If you have a mortgage or car loan, debt consolidation won’t change those loans, but it can help you manage other debts better, making it easier to keep up with your mortgage or car payments.

While entering debt consolidation might temporarily lower your credit score, making timely payments on your new plan can improve your score over time. You’ll need to share information about your assets, including your home and car, so your debt counsellor can create a suitable plan. Once you’re in a better financial situation, you might also have the chance to refinance your loans or even sell your car or house to pay off debts. Overall, debt consolidation can provide support to help you manage your finances while protecting your important assets.