contactus

Debt Counselling News

Risks of Debt Consolidation

Debt consolidation is a common way of approaching debt that has spiraled out of control. It involves taking out either a secured or unsecured loan from a lending institution to settle all the current debts that you have accumulated. In other words, you go further into debt in order to get on top of your current debts.

The result is that all of your debt is merged into a new loan, ensuring that you are only responsible for a single payment as opposed to several payments into numerous accounts. Debt consolidation simplifies your finances, gives you a lower interest rate on your combined debt and procures much needed time in the case of imminent bankruptcy.

Of course, there are risks associated with taking out any loan, especially when you’re using additional debt to settle your current debt. These risks are easily avoided if you can recognize them and address them accordingly.

The Risks

  • Your Credit Rating

After taking out a debt consolidation loan, your credit rating will initially take a hit. Taking out another loan essentially eradicates all progress that you may have made towards paying off your current debts.

However, the reality is that nothing will hurt your credit rating as much as bankruptcy. While the initial blow to your credit rating may seem self-defeating, the long-term disadvantages of an entirely tarnished credit rating will be even worse.

On the flip side, if you recover from the initial blow and get on top of your finances, you will ultimately end up with a better credit rating in the end.

  • Impulsive Spending

A debt consolidation loan will allow you to settle several accounts. However, beware of the mindset that would make you believe that your debt has disappeared. In fact, your debt has been consolidated into a new loan.

When you see that your account balances are R0, you should not take it as a green light to start accumulating debt again. If you continue to spend money that you don’t have, you will only undo the benefits of a debt consolidation loan. Accumulating more debt after you’ve just consolidated your debt is a dangerous move, and one that is likely to leave you with a worse problem than you had in the first place.

  • Your Assets Being Repossessed

If you choose to take out a secured loan, you need to be aware of the risks involved with regards to your assets. Your assets are offered as collateral in the case of a secured loan. If you default on payments, your house or your car could be repossessed for immediate repayment.

Secured loans are a good option if you’re looking for a bigger loan and a lower interest rate, but the risk to your property should be carefully considered.

  • More Long-Term Interest

Some consolidation loans offer you lower monthly repayments over a long-term period. In this case, it is important that you work out how much interest you will pay over the full loan period. Sometimes the interest is a lot higher than you thought it would be, and the illusion of low monthly repayments will only ensure that you pay more in the long-run.

  • Dishonest Lending Institutions

There are many creditable lending establishments that offer debt consolidation loans. However, there are debt consolidation scams in circulation. It is of the utmost importance that you carefully consider which lending establishment you will use to consolidate you debt. Do not fall prey to the dishonest practices of a few unethical businesses. 

Summary

As is the case with any loan, a debt consolidation loan has risks attached. It is important that you weigh these up before you decide to consolidate your debt.

PMB & Natal Midlands

We are able to assist you!
  1. Pietermaritzburg
  2. Ashburton
  3. Camperdown
  4. Hilton
  5. Cedara
  6. Tweedie
  7. Merrivale
  8. Howick
  9. Nottingham Road
  10. Mooi River

If you feel you are over-indebted, do not wait until it is too late. Our offices are centrally located in Pietermaritzburg for your convenience.
Contact Us Now!

Powered by

Powered By Fidelity Debt Counselling (Pty) Ltd
Debt Counselling Pietermaritzburg and Midlands
Fidelity Debt Counselling Services PDF Print E-mail


Fidelity Debt Counselling Services (Pty) Ltd

 

A Little Bit About Us!!

Fedility Debt Counselling Services is a specialist company formed with the aim to

render professional Debt counselling services and to assist consumers with the

Debt Review process created under the National Credit Act (NCA).  The NCA has

now made it possible for a debt counsellor to declare a consumer over-indebted

and to propose a scheme to be made an Order of Court, re-arranging a consumer’s

financial commitments under their credit agreements.

In our present financial climate of:

 

  • *Rising interest rates
  • *Debt repayments on average constituting over 80% of household income
  • *Aggressive asset repossessions and bond foreclosures.

FIDELITY DEBT CAN HELP ease your burden, retain your assets and maintain a
comfortable lifestyle.

 

The Procedure

If a consumer believes that he/she is over-indebted he/she has the right to apply to a

debt counsellor to have himself or herself declared over-indebted. This procedure is only

in place in respect of credit agreements where the credit provider has not issued Summons.

The purpose of debt review is to head off legal action to seek a negotiated settlement and to

obtain a court order against the credit providers forcing them to accept a lesser installment and/or

to extend the repayment period of the agreements.

 

The procedure provided for by the Act is as follows:

 

  • *You (“the consumer”) apply to us (“the debt counsellor”) to be declared over-indebted.

  • *Upon receipt of your application and payment of the statutory fee of R50.00, we will give notice to all credit

bureaus and to all your creditors that you have applied for a debt review.  Thereafter, for a period of 60

business days, and whilst the debt review process is still ongoing, your creditors under your credit

agreements may not proceed against you for payment of your installments or repossess  any

of the assets under the credit agreements such as your house, car or furniture.  You may however

not incur further credit during this period.

  • *You will be required to complete a statutory form at our offices setting out all your financial information.

We will verify this information with your creditors.

  • *Should we find that you are over-indebted, we will attempt to reach settlement with your creditors on

reduced installments, interest and capital. Should this fail, we will ask the Court to make our proposal

an Order of Court.  Such Order will reduce installments and extend the period of your credit agreements.

  • *As long as you honour your obligations under the debt review program, your creditors have no recourse

against you or your assets.

  • *Once your debt has been paid in full, we will issue you with a clearance certificate confirming that your

debt review program has been completed and that you are Debt free.

                                                                         *******

DO NOT DELAY CONTACT US IMMEDIATELY SHOULD YOU REQUIRE OUR SERVICES

                         Our National Credit Regulator Registration Number: NCRDC138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

We'll Call You!


Please complete the short form below and we'll contact you!