Reasons Why You Should Consider Debt Consolidation
Many people are in the situation that they cannot manage their debt effectively. While some people have been negligent in the way they deal with credit, many people cannot be blamed for being in the situation that they are in. The recession and the credit crunch has placed many people in the unenviable situation whereby they do not earn sufficient income to service their debt each month. Home owners who are in this situation have some respite in the form of debt consolidation.
For people to be able to use this as vehicle to manage their debt, they need to own a home that has equity in it. Equity is the difference between what the home is worth and what is owed on the home. In principal, homeowners are able to borrow an amount of money that is more or less equivalent to the equity in the property.
If the debtor does not have a bond on the property, then he or she will apply for a bond to the value of the amount of money that is owed to other creditors. If the property is already bonded then the home owner will take out a second bond. Either way, there will be sufficient income to pay off all money that is owed to credit cards, loans, vehicle finance and the like.
The advantages to doing this include having a longer time to repay the money and it is always at a much lower interest rate than the original debt. Homeowners will then have more cash flow each month as the monthly repayments are far less than was the case before. Another advantage is that there is only one payment each month to the bank instead of multiple payments to credit cards, loan companies, clothing and other retail stores.
As creditors charge service fees, there will be a further saving as you will now have only one service fee to pay. Savings each month can amount to thousands of rands by using this option. While some quarters have their scepticism about this, there are ways around this.
On the face of it, this option can be perceived to be shifting short term debt into long term debt. In principle that is not a good strategy. As mentioned earlier, cash flow improves significantly each month when people work with their money in this way. Sadly, many people will start living the high life with this extra money and before they realize it they will be back to square one and requiring funding once again. This should be avoided at all costs.
The secret to this is to start paying a portion of that additional money back into the new bond. Even a small amount each month will make a significant difference on the length of the bond. Most websites will have bond calculators on them that will show the savings that can be made.
In conclusion, you will notice that debt consolidation provides you with the opportunity to pay your bond off quicker. With a little discipline, you can reduce this term by up to half. Your goal should be to use this to become free of owing money to creditors.
