Effective Use of Programs for Debt Consolidation

debt consolidation programs
Effective Use of Programs for Debt Consolidation

There are many consumers who are interested in debt consolidation programs, but they do not have a precise idea of what these programs are and how they should be used for best results.

Find out the main things which you need to know about them and get some practical advice on their use.

The typical debt consolidation program works like a big loan which is used for paying off a set of smaller loans. These programs can help borrowers avoid getting into debt. They can result in money savings as well. At the same time, they come with potential pitfalls which you must be aware of.

When to Use a Debt Consolidation Program

If you are paying off a number of different loans, you will most certainly find the consolidation of all loans into one to be useful. That way, you will have only one monthly payment to take care of. You will be able to save on transaction costs. More importantly, you will avoid issues with lenders because of missing payments accidentally.

Typically, the debt consolidation programs extend the loan repayment term. In this way, you will pay smaller monthly instalments. This will free a chunk of your income and help you manage your finances more effectively.

The debt consolidation programs are often useful for repaying credit cards with high-interest rates. If you are not careful with the use of cards, you can accumulate a large amount of debt which is quite challenging to repay. In this situation, a program for consolidating debt will enable you to repay your entire outstanding debt and secure a lower interest rate than the ones on your cards. When the new loan is secured, its rate will certainly be much lower than that on any credit card. That way, you will not only get rid of debt but get the opportunity to save money.

Debt Consolidation Program Considerations

You have to know that such a program will not erase your debt. Your existing debt will be transferred to a new loan. The new payments may be lower, but you will still have to be financially disciplined and plan for the repayment of the loan.

It is not uncommon for people who use a debt consolidation program to get careless about their spending. All of a sudden, they find that they can still borrow as much as before from their credit cards. In this case, using the cards extensively can get the consumers into more debt as they still have the consolidation loan to repay.

Another thing to take into account is the total interest paid on the consolidation loan. If the loan's term is quite long, the total interest amount can become quite high since interest is paid every month. In this case, the new loan may turn out to be more expensive. Of course, you may be willing to accept this trade-off for the sake of paying smaller monthly payments which will enable you to manage your budget and live comfortably. Generally, if the interest rate on the consolidation loan is much lower than the ones on the repaid loans, you should be able to save. You can use a loan calculator to determine the total cost of the consolidation loan and to decide whether and how much you will be able to save.

You have to take into account the risk of using a debt consolidation program. Typically, the debt consolidation loans are secured with the home of the borrower. There are several benefits of using a home equity loan for repaying unsecured debt. The main one is the lower interest rate which the lender sets for assuming lower risk. The borrower can secure tax savings as well. At the same time, most of the risk is transferred to the borrower. If the loan is not repaid as per the set schedule, the lender can take over the person's house. You have to evaluate this risk extremely carefully, especially given the fact that unsecured lenders are not automatically entitled to repossess your property.

The Right Debt Consolidation Program

There are many different programs provided by various debt consolidation lenders. You will benefit greatly from following a step-by-step approach to selecting the right program for you.

You should approach lenders that you already have a relationship with such as your bank in the first place. They are more likely to give you a fair offer that matches your needs.

You should try banks that you currently do not have a relationship with as part of this next step. They may offer more attractive deals in an attempt to win you as a customer.

Consider peer to peer lending, if you have a fairly small amount of debt and a bad credit record.

Check out the mail debt consolidation offers that you have received. The lenders who have already approached you are highly likely to give you a very good deal. At the same time, you should research these lenders carefully. You should work only with reliable institutions that have a solid reputation.

You should definitely use an online search to find attractive debt consolidation deals. Again, you have to watch out for scams. It is best if you can find genuine user reviews to evaluate the different opportunities.

Last, but not least, the best way to join a good debt consolidation program is to keep your credit in good condition. When you have good credit, you will have higher chances of getting approved and of securing a lower interest rate as well.

Popular & reliable direct lenders offering Debt consolidation

  1. Debt Rescue Consolidation loan

    Debt Rescue

    • Free Debt Assessment
    • Get a Rescue Plan
    • ONE Affordable Payment
  2. African Bank Consolidation loan

    African Bank

    • Loans up to R350,000
    • Term up to 72 months
    • Interest from 15%
  3. Capitec Consolidation loan


    • Loans up to R250,000
    • Term up to 84 months
    • Interest from 13.75%
  4. Absa Consolidation loan


    • Rebuild your credit
    • Get debt relief
    • Lower interest rates