Before considering debt solutions that will show up on your credit score, try to consolidate your debts first.
Debt consolidation involves taking out a loan to pay off all existing debts, leaving only the one loan to pay off. Many banks in South Africa offer this service as a debt solution, provided the applicant has an impeccable credit score to begin with.
Consolidation is one of the few debt solutions that afford a consumer the opportunity to manage their debts without the assistance of a legal expert or debt counsellor.
When considering debt consolidation as a debt solution, a consumer ought to be sure that they are in the financial position to take on anymore debt. This includes both the credit score, and financial resources to cover the payments on the loan.
There are two primary means of debt consolidation – secured and unsecured loans.
A secured loan leverages the assets of a consumer against their loan as security. This means that should the consumer ever not be able to pay their loan, the default will result in their assets being repossessed. These loans are easier to procure though, as lenders will feel secure that their money will be returned in one way or another.
An unsecured loan requires no security but has a higher interest rate and is tougher to procure as the lender is taking a bigger risk by extending the credit to the consumer.
As far as debt solutions go, consolidation is the only remedy that will not negatively impact on a consumer’s credit score or financial future.
Article written by: Andrea van Tonder 03-2013