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The ABCs of Debt Consolidation

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Enter the term ‘debt consolidation’ into any search engine and chances are that you’ll get a lot of contradictory information. You may see links suggesting it’s the root of all financial evil or adverts claiming it’s the wonder solution to all debt distress. However, it’s not as simple as the critics or supporters suggest.

Debt consolidation isn’t for everyone, but it may be a useful tool to take the pressure off your finances during these challenging socio-economic times. If you find yourself over-indebted and falling behind with your debt repayments, debt consolidation can protect your assets by arranging a structured, affordable repayment plan for your outstanding debt.

What is Debt Consolidation 

Before we dive into important information around debt consolidation, it helps to understand exactly what it is. Simply put, debt consolidation involves taking out a longer-term loan to pay off a range of debts. For example, loans, credit cards or store cards. When done correctly, debt consolidation can help you get out of your debt faster by paying less interest on debts, and helping you correctly manage your finances moving forward.

Keep in mind that debt consolidation is not a product for people who can’t manage their money. This is a stigma that simply isn’t true. Consolidating your debt is a financial tool. In fact, it’s an avenue that’s used by businesses and many financially savvy people who want to simplify their financial affairs. Whether to save on certain costs or free up cash as quickly as possible, consider debt consolidation as a means of managing your debt.

Advantages of Debt Consolidation Loans

Critics argue that the only real advantage of taking out this kind of loan is that you only have one creditor to manage. However, there are other benefits to consider too:

  • Consolidation loans usually have fixed interest rates so it’s easier to budget and manage your financial affairs. 
  • Having only one loan to repay also means you’re less likely to miss payments, something that could impact your credit rating over the long term. 
  • Consolidating your debt can save you money on service fees and credit life cover costs.  
  • Depending on how the consolidation loan is structured, it could also improve your cash flow by requiring smaller payments, over a longer period. Keep in mind that you’ll be paying interest over a longer term.

Following the Plan to Financial Freedom

If you find yourself in the fortunate situation where a debt consolidation loan frees up some additional cash each month, try to use the extra money to repay your loan even faster. If not, then strive to spend it wisely or put it in a savings account. You can even invest it. Use our debt consolidation calculator to decide if this is an option that could secure you better financial health and freedom.

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DirectAxis is a business unit of FirstRand Bank Limited, an Authorised Financial Services and Registered Credit Provider, NCRCP20. Direct Axis SA (Pty) Ltd, Reg no. 1995/006077/07, an authorised Financial Services Provider, FSP7249 & FSP5. 108 De Waal Road, Diep River 7800.

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Loan repayment terms range from 24 to 72 months. The maximum interest rate with regards to a DirectAxis Personal Loan is 24.50% per annum (compounded monthly). Your rate and initiation fee will be determined according to your personal risk profile.

An illustrative example of a loan at an interest rate of 24.50% per annum would be: Loan amount R50 000 plus a once-off initiation fee of R1 207.50 and a monthly admin fee of R69.00, over 72 months.

The total cost of the loan will be R 103 155.57 which is a maximum Annual Percentage Rate (APR) of 27.76%.