It’s normal to balance several, manageable debts in your life, such as your ongoing vehicle finance payments and a student loan. But maybe the admin is burdensome, and you’re looking to simplify.
If so, debt consolidation may be the solution for you. We find out how this differs from debt counselling, and we consider what you need to do to qualify for a consolidation loan.
Tip: You can apply for debt consolidation today – find out more.
The difference between debt consolidation and debt counselling
Ayanda Ndimande, head of Sanlam Business Development for Retail Credit, says that there’s a clear distinction between debt consolidation and debt counselling.
Debt counselling is a legal process that’s put in motion by a court order, which declares that you’re overindebted. You can apply through a debt management company, and they will assign you a debt counsellor who will renegotiate your credit agreements on your behalf.
Ndimande points out that the debt counsellor’s fees are usually included in your repayment amount, which means that you don’t have to worry about any additional fees for the support you receive.
The downside of debt counselling is that a note will be placed on your credit report explaining that you’re under debt counselling, and any new creditors will be barred from extending credit to you.
Debt consolidation, on the other hand, does not prevent you from taking out additional credit. Ndimande says that the process involves taking out a loan that you can use to pay off your other debts.
“Once your debt is combined into a single loan, you will qualify for more favourable terms due to a longer payment term, such as receiving lower interest,” says Ndimande.
She adds that you are also less likely to miss your repayments if you have only one loan to focus on, and this can ultimately help to improve your credit score.
If you’re struggling to keep up with various debts, but you’re not completely overindebted, then debt consolidation may be the right option for you. It’s considered a financial tool that can be used to untangle your finances so that you can manage your monthly expenses more easily.
Qualifying for a consolidation loan
Even though consolidating your debt is considered a responsible, financially-savvy choice, it still involves applying – and being approved – for a new loan.
Ndimande says that there are three main aspects you ought to consider if you would like to qualify for a consolidation loan:
- Have a good credit score. As when you applied for your other debts, you need to make sure that you have a decent credit score. This will enable you to receive a lower interest rate, and your new creditor will feel confident lending to you.
- Make sure you’re up to date with your other debt payments. If you've skipped any of your monthly repayments, your credit score may be on the cusp of decline. Get ahead of your repayments, protect your credit score, and successfully take out a consolidation loan.
- Consider affordability. When you apply for a consolidation loan, your new creditor will consider your monthly income and expenses. Make sure that you can afford the monthly repayments by ensuring a consistent, and hopefully increasing, income.
Are you ready to take out a consolidation loan? Click here to get started.