Personal Loans to Consolidate Debt
June 24, 2014
Personal loans to consolidate debt need to be used wisely. There are a myriad of advantages that debt consolidation can offer when used correctly and sensibly.
So What Are Consolidation Loans?
These types of loans are usually applied for to help pay off smaller loans. One of the main reasons to consolidate smaller loans into one larger one is to secure an overall average interest rate. Usually debt consolidation loans will replace high-interest short term loan like store cards, credit cards and personal loans with a lower interest rate and longer term loan. So this type of consolidation lets you make a clean start by turning your existing debts into one manageable monthly payment. It’s also a good way to save on service charges and other fees.
The result with personal loans to consolidate debt is that your repayments will be lower and that in turn will help with your cash flow.
An example of when to apply for personal loans to consolidate debt
Let’s say you have the following that requires debt help:
- A home loan for R600 000
- Vehicle finance of R120 000
- Credit card finance of R25 000
- A personal loan of R45 000
- Your monthly repayments amount to more than R10 500 and your interest rates are fairly high.
By applying for fast loans online, dept help means that you’ll be able to take a further advance on your home loan and use the cash to settle and hopefully close all the other accounts. So after consolidation with your online loans, you’ll be left with just a home loan of R790 000.
Are There Risks With such Cash Loans?
While personal loans to consolidate debt seem like a good idea, there are a few risks. Despite the interest that you can save each month, you end up extending your debts over say, 20 years instead of paying them off over 3 to 5 years. That means long term you’ll be paying more interest. You could even end up paying off your car long after you’ve sold it.
So to prevent this happening you can pay as much of the extra repayments into your bond monthly when you can afford to. Let’s say you apply online for a personal loan to consolidate your debt, you can redirect the payments you would make on the short term debt into your bond and that way you could pay off your home loan in less than 10 years instead of the usual 20 years. By doing this you’d save massively on the interest expense.
Short Term Expenses
A good rule of thumb is not to pay short term expenses using personal loans to consolidate debt. But if this is one of your immediate options, it may help to avoid defaulting on loan repayments.
Debt consolidation can indeed be a lifeline and it’s a better choice than having a judgement served against your or having your belongings repossessed. It is, however, better to try to repay short-term debt as soon as you’re able to do so.
The danger is that you may find yourself with a bit of extra cash at the end of each month and be tempted to spend it which will land you back in trouble in no time at all. At all costs you should avoid falling into your regular spending patterns that originally lead to your debt.
Just like any other credit facility, use your personal loans to consolidate debt wisely.
Next step: complete and submit the form on this page to apply for an online loan
All info was correct at time of publishing