Let’s face it, who wants to arrive home from work to find a bailiffs notice pinned to their door. Unfortunately, this is a sight that you may see if you do not take action when you know that you cannot keep up with your repayments on time.

Debt consolidation is a service that is easy to understand. What it involves is signing up with a lender who will provide the capital to pay off all your outstanding debts, in return you are given a new loan and terms and conditions that should be easier to understand and manage.

It can be that if you have multiple loans, balancing your home’s outlay becomes extremely confusing. Knowing on which date money is due, and how much, is not always straightforward. By opting to take out a single loan, albeit one that is larger in value, you should find that planning and budgeting is a lot easier.

A consolidated loan usually comes with smaller monthly payments that need to be met as compared to what your current obligations are. This is for two reasons, first of all the rate of interest may be less than the total of that what you currently have, and secondly, the overall length of the agreement is likely to be longer. Both these factors are positive, they can make a big difference to how much money you have left in your pocket at the end of each month.

Another important impact of choosing to consolidate your current debts is that it can help to improve your credit score, which in turn can have a knock on effect in other areas. Holding multiple loans, and struggling to pay them back, can create a credit rating which is extremely poor.

Before you affix your signature to a consolidated loan agreement, make the effort to check out the reputation of the lender you have chosen. Go online and search for reviews and ratings posted by other consumers, this should help you to choose a company with a good reputation and excellent customer service.

Getting a set amount of money to pay is rather important for many people to have. However, if the individual does not have the proper knowledge on this it will be easy for them to learn more about the amount they have to pay. Then the individual will not have to be concerned about trying to figure out how much they are going to be paying each month.

One interest rate is a great thing to be paying on each month for many people. When the individual has this set rate, it should be rather easy for him or her to know the amount of money paid will be lower. Then the people will not have to be concerned about the costs of these changing on them.

Paying off the loans at a faster rate is something else many people will enjoy seeing. When a person can see this it ought to be rather simple for him or her to get out of debt. Then the individual will not be in debt for months or years to come.

Getting a relationship established with a reputable company is important to do as well. By doing this the individual will have the proper knowledge on how to get a loan. However, the individual will also know the company can be trusted to help them with other loan issues as well.

Additional money in their pockets each month is something an individual will enjoy. Some people will enjoy this cause it will allow them to get the items they want to have. Then the debtor will not have to be concerned about how to get by on the money they have each month.

Being able to get out of debt quickly is something quite a few people want to do, but do not really have any plan in place on how to remove the debt that is troubling them. This is when the individuals may need to learn about the benefits of carrying out the bad debt consolidation which can help them free up some of their money. Some of these benefits to be exploited include the ease of getting out of debt, knowing how much will be required to pay each month, getting to deal with only one interest rate instead of multiples, getting the freedom of having the loans paid off at a faster rate, getting to use a company which can be trusted to provide the money, and even getting some additional money for people to spend on items they want to be buying instead of items they should be buying.

The debt consolidation company then makes the payments to your creditors on your behalf with the money that you give them. This act prevents you from constantly dealing with the creditors as they attempt to collect their debts and uses the debt consolidation company as a buffer or middleman.

Typically there are two different types of debt consolidation loans. These two types of loans are secured and unsecured debt consolidation loans. Secured debt consolidation loans are only provided if you are able to produce some form of collateral equal to the total being borrowed. Here you may use any asset you own; it may be your car, your home, or even your bank account. Because collateral is being offered, a consolidation company would lend as much as you need if it is a secured debt consolidation loan.

If at the end of the term of the loan, the amount hasn’t been paid, the secured debt consolidation company has the right to confiscate whatever item was being used as security for the loan. Because of this the interest rate is lower and the amount of the loan is higher in a secured loan versus that of an unsecured one.

As you may infer from the name, there is no collateral or security for an unsecured debt consolidation loan. Because there is no collateral on the loan the interest for this type of loan is typically higher. In addition to higher interest rates, those who apply for an unsecured consolidation loan can expect not to receive the exact amount that they request. Usually, the amount offered is significantly lower than what was requested. This is done by the debt consolidation companies in an effort to minimize their losses. This is also the reason why interest rates are higher. Companies collect more on a monthly basis in attempts of making the money from the original loan back faster.

Though you may not get the exact amount of money you need to cover all your debts unsecured loans may be the safer of the two options. Even though it may be a bit less you don’t have to worry about losing any of your possession in the event that the loan can’t be repaid.

Debt consolidation loan

One way to consolidate your debts is by taking at a loan which will enable you to cover your debts and reduce your commitments to one monthly payment.. This generally results in a much lower interest rate and so a lower monthly payment. However, it is important to shop around and negotiate the lowest rate possible. Beware of loan companies which advertise a good rate for a limited period of time unless you are certain you can pay off the loan during that period.

Be careful, too, of extending the loan term for too long a period. Although this will initially result in lower payments, over the term of the loan you could end up paying a great deal more interest. In other words, if you can secure a loan at a low interest rate and pay off your debt in a reasonable length of time, a debt consolidation loan is a good option.

Administration Order

If you have a poor credit rating and do not own your own home you might find it difficult to obtain a debt consolidation loan. In this case, if you have a number of debts totaling under R50000 and are not able to meet all the payments, you may apply for an administration order at the Magistrate’s Court.

An administration order works in the following way: An administrator is appointed by the court, the debtor pays an agreed portion of his wages to the administrator each month and these are distributed to the creditors on a proportionate basis. Not all debts can be covered by an administration order – your bond repayments, rates and utilities will have to be paid separately out of the portion of your income made available for your monthly expenses.

The advantages of an administration order are that eventually your debts are paid in full, in the interim you have enough money for your day to day living expenses, and your possessions cannot be repossessed by irate creditors. The disadvantage is that you are precluded from opening any accounts while the administration order is in place and the order will remain on your financial records for 5 years after the debts have been paid.

Debt arbitration

There is one other option for debt consolidation which can be used if you are in severe financial trouble and unable to deal with your debts using the above two methods. Debt arbitration is a legal process which enables the debtor to renegotiate the amount to be paid, perhaps by having interest and collection fees waived, in order to make the debt more manageable and to avoid legal action being taken. This is generally carried out with the assistance of and on the advice of a debt counselor or debt settlement lawyer.

Although the latter two options for debt consolidation in particular might have an initial negative impact on your credit rating, they beat filing for bankruptcy, which could be the only other alternative, hands down, and provide you with a means of clearing your debts and starting again with a clean financial slate.

Unsecured loans:

An unsecured loan is money which is lent without the borrower having to provide any form of collateral, although you will almost certainly have to prove receipt of a regular monthly income. This means that, if you should default on the payments, your property will not automatically be repossessed. However, because no assets are required to be signed over to secure the loan there is a certain level of trust, and risk, involved for the lender. As a result the interest on the capital is usually considerably higher than that of a secured loan. For this loan to be beneficial it is crucial to ensure that the combined interest and management fees do not exceed that which you are already paying on your individual accounts.

If you have no major assets to offer as security, or if you have a poor credit history these might be the only loans available to you. As a rule unsecured loans are not provided by major banking institutions and it is unlikely that you would qualify for a large sum of money to consolidate your debts without having any form of security to offer.

Secured loans

A secured loan is money lent against collateral offered by the borrower. This could take the form of a house, motor vehicle or other property. If you take a secured loan and then default on your payments the lender is entitled to sell the collateral to recover his money. Because of the relatively low risk involved in a secured loan the principal amount for which you will qualify can be considerably higher and the interest rate, in turn, significantly lower than that of an unsecured loan.

In South Africa the most common route to go when consolidating your debts is to take a second bond on your home. Although this puts your home at risk should you be unable to pay back what you owe, the savings in interest alone, particularly if you use the money to pay off credit cards debts, makes this a very attractive option.

Some major banks offer a flexible home loan which makes extra capital available on your bond and then combines all your accounts into one facility. By consolidating your accounts in this way not only do you benefit by a lower interest rate when your salary or other funds are paid into the combined account, but only one monthly banking fee is payable.

Both secured and unsecured consolidation loans can provide you with a way to deal with debts which have become unmanageable. Your ultimate choice will be determined by your needs and your circumstances.