bad debt consolidation loans

bad debt consolidation loans

Many South Africans are dealing with a very heavy debt burden, causing them to spend a good portion of their monthly income making payments on these loans.

What is the Benefit of  Bad debt Debt Consolidation Loans?

The benefits of a debt consolidation loan mostly have to do with saving money on interest and a number of other costs. Making one monthly loan payment to a bank would likely be for a lower total amount than making monthly repayments to a number of separate institutions. It might also save considerably in monthly bank charges and administration fees.

The borrower would also only be dealing with one creditor instead of a number of different credit providers. Another benefit is that many loan products allow the borrower a certain amount of flexibility when it comes to having access to additional funds if it turns out they need to borrow more.

What are Alternatives to Bad Debt Consolidation Loans?

Debt consolidation is only one option. If you are unable to manage your debt, you also might consider debt settlement, a debt management plan, or filing bankruptcy.

  • Debt settlement. Debt settlement involves negotiating with creditors for a reduced payback amount or a lower monthly payment. While credit card companies are under no obligation to negotiate, many will if you explain your financial hardship and the reasons you are unable to make the monthly payment. You can do this on your own or a debt settlement company can assist in negotiating down the debt on your behalf — though usually for a fee.
  • Debt management plan. You can enlist a nonprofit credit counseling agency to help develop and maintain a debt management plan for you. A financial counselor can help set a realistic budget and negotiate lower fees and payments with creditors. Every month, you then deposit money into an account from which the debt management organization makes your monthly payment. These types of debt management plans require diligence. Many such plans are contingent upon you making consistent payments on time. If you pay even one payment late, you could lose the lower interest rate you negotiated and accumulate even more fees.
  • Bankruptcy. No one wants to file for bankruptcy, but in some situations, it is the best option. Consult a credit counselor or other unbiased advisor to weigh the pros and cons. And keep in mind that some debts — such as student loans, alimony, child support, taxes and restitution as the result of a criminal sentence — cannot be discharged in a bankruptcy. Some assets, such as retirement accounts and 401(k) plans, also are off-limits and cannot be used to pay off debts in most cases.