What is a consolidation loan?

18/10/2019

Student loans, car loans, credit card bills… You spend so much money paying off your debt each month, that often there’s nothing left for you. Trust me, you’re not alone. There is, however, a solution. To get out of debt, a debt consolidation loan can be a helpful tool. You might ask yourself ‘what is a consolidation loan and how does it work’. We unpack it all for you in this blog and show you how these types of loans can be of value to you.

What is debt consolidation?

Debt consolidation means combining all your debts into one easy-to-manage amount. This process means applying for a consolidation loan, which you will then use to turn several payments into one – often with a lower interest rate and new terms of agreement. If you’re having trouble making ends meet every month and you’re looking for solutions on how to get out of debt fast, a debt consolidation loan can work for you. This will however require discipline and commitment in order to make the process work for you.

Benefits of a debt consolidation loan

There are many benefits to applying for a debt consolidation loan. It’s the smart move when it comes to paying off multiple debts and you can save some money too. But there’s more…

  1. You save on interest: If you have multiple debts, each debt comes with its own interest rate, adding considerably to the amount you have to pay each month. However, because a consolidation loan combines all your debts into a single payment, you will only have one fixed interest rate to concern yourself with.
  2. Pay a lower instalment each month: Living to pay off debt is no way to live. A debt consolidation loan can help you keep up your credit payments and still have enough money left over for living expenses. For example, if you had five debts you were paying to different creditors, a consolidation loan will combine all those debts so that you only pay a single creditor. That means more money left over each month to start building up a savings buffer that will keep you from falling into bad debt in the future.
  3. Improves your credit score: If you’re struggling to keep up with your debt repayments each month, maybe missing the odd payment here and there, your credit score will suffer. By combining all your debts into a single, lower, monthly instalment, it will be easier to make sure that your accounts are paid up each month, thus keeping your credit score healthy.

 

Things to remember

While debt consolidation can be an effective way to get control of your debt, there are a couple of things to remember.

  • Consolidation loans generally don’t include secured loans, like car financing. It will include credit card debt, store accounts, personal loans etc.
  • You need to ensure that you stop using the credit accounts that you’ve taken out a consolidation loan for. This is to make sure you don’t end up with even bigger debt than you faced before the debt consolidation loan.

Ready to apply for an African Bank Consolidation Loan? It’s quick and easy to apply for an African Bank Consolidation Loan and you can upload your documents through our website. Click here to get started. These are the documents you’ll need:

  1. Identity document
  2. Latest payslip
  3. Latest bank statement reflecting three salary deposits

Up Next

Grow your money
The flexible nature of working from home is appealing for new moms and many opt for this when the pitter patter of little feet is on the horizon.

Publish Date: 17/04/2018
Read more
Getting to know Basani Maluleke
A new era started at African Bank on 1 April 2018, the day Basani Maluleke, was appointed as our CEO. Basani follows in the footsteps of Brian Riley, who saw the Bank through curatorship and laid the foundation for the exciting future that lies ahead of us.

Publish Date: 01/04/2018
Read more
Three tips: How to use your credit card wisely
There are more than 8.8 million credit cards in issue, and more than 38 types of credit cards available in South Africa. South Africans have on average one credit card. So. Question is, are you using your credit card wisely?

Publish Date: 22/02/2019
Read more
Dad, here’s how you can be your child’s financial superhero
Fathers are often their children’s first real-life superheroes.Children do as we do, not as we say. So dads, our question to you this month is – are you modelling good financial behaviour?

Publish Date: 04/06/2018
Read more
Saving to educate your children? Get the most out of your money
There is no greater gift that you can give your child than the gift of a secure education.We all want to give our children the very best, however, ensuring that you give your child a quality education costs money.

Publish Date: 09/07/2018
Read more

About African Bank

Our mission is to be a successful Retail Bank offering a wide range of products and services to the consumers of South Africa. The people who work for African Bank represent the diverse population of South Africa; therefore we are a reflection of you, of all South Africans. We seek to provide value - more than our consumers expect of us. We promise to live our purpose 'humanity through banking' in all that we do and we are confident that we can, because 'We are You'.