How to Know if You Need Debt Counselling

How to Know if You Need Debt Counselling

If you are over-indebted then you might find debt relief through the process of debt counselling, which creates an affordable repayment plan to repay outstanding debt.


You are generally considered to be over-indebted if you struggle with making debt repayments on time or if more than half of your income goes towards paying debt.

With debt counselling, a debt counsellor will measure your expenses and liabilities against your income in order to determine how indebted you are. If your expenses and liabilities are more than your income, then you are over-indebted.

You will need to hand over certain information to your debt counsellor, who will then inform the credit bureaus that are you are under debt counselling and will stop creditors from contacting you. The debt counsellor will then negotiate with creditors on your behalf for lower interest rates and extended payment terms.

You will then only need to pay one reduced monthly instalment towards your debt according to your debt repayment plan.

But how do you know if you need help in managing your debt? Here is how you know that you need debt counselling.

Keep reading and let’s find out if you are over-indebted…

Your Monthly Expenses Are Paid on Credit

If you are using lines of credit like a payday loan, credit card or store cards to pay for your basic monthly expenses like petrol or food then you may be in over your head. It will only be a matter of time before you max out your credit, which will result in hefty damage to your credit record.

You Don’t Have Any Savings

You may want to save, but find that it is almost impossible because your debt repayments are just too high. There is a difference though between having no savings and being unable to save. If you have no savings, then this could be due to poor financial management. If you are unable to save because you do not have the funds to then you could be over-indebted. If you don’t have any money to save and everything is going towards debt and other expenses, then you may need to seek help.

You Are Paying Debt with Debt

If you are borrowing money from family and friends, taking out payday loans, using your overdraft to settle accounts and so on then you are not financially healthy. If you are already not able to afford your debt, then you are just making the situation worse and driving yourself deeper into debt. You will be trapped in a cycle of debt.

Just a couple more signs…

You Can’t Sleep

Being financially stressed is terrible and will eat at you, which will cause sleepless nights, which will then affect you during the day at work etc. This can easily lead to depression and other health issues.

You’re Not On Top

It can be tiring trying to play catch up with your repayments. You may think that skipping one payment isn’t too bad but as soon as you miss one, it means that you have double to pay the next time and so on. You will just have more pressure on you the month after and your situation is not going to get better.

If you can relate to any of the above, then you may need to seek help with your debt through a debt counsellor. Ignoring your debt will not make it go away and the first thing that you need to do is face it and accept that you do need help. Taking the first step in getting help will mean that you are on the right path to leading a debt-free life and could soon say goodbye to your debt troubles.

What Does It Mean to Default on a Loan?

Not everything goes to plan as life is full of surprises and even though you had every intention of paying off your loans, something may come up like a job change or a health event that could put a spanner in the works. This may mean that you eventually default on your loans, but do you know how this will affect you? We take a look at what it means to default on a loan.

loan default

What Happens When You Default?

There are consequences of defaulting on a loan, which shouldn’t be a surprise. Defaulting on a loan will usually damage your credit and can cause additional expenses.

When you fail to make your required payment, your credit will take a hit. You might be in the clear for the first 30 days after the payment is due, but after this, missed payments are reported to the credit bureaus, which will lower your credit score. This will make it more difficult for you to secure a loan in the future and may make it harder for you to sign up to utilities, cell phone contracts, renting and so on.

Unpaid debts may eventually end up in the hands of collection agencies, which will damage your credit and can lead you to court which can be expensive. As time moves forward lenders might be able to garnish your wages or even take assets from your bank accounts.

On top of this, your financial burden may get worse when you default on a loan as this will incur additional charges like late payment fees, penalties and legal costs, which will just increase the amount that you owe.

Keep reading to find out how a default affects your loan type…

What Does a Default Mean for Your Loan

The type of loan that you default on will have different consequences.

If you have a secured loan that is secured with your home or car, then the lender can potentially take ownership of this property and sell it.

Unsecured loans, on the other hand, will damage your credit and lenders can take legal action against you.

If you bought your home with a loan or if you borrowed against your home with a second mortgage or a home equity line of credit, then your lender may force you out through foreclosure and sell your home so that they can recoup the loan costs. If the sale of your home doesn’t cover the whole amount that you owe, then you may find that you will still owe the difference.

If you default on a car loan, the vehicle can be repossessed and sold and you may still owe the difference if the sale doesn’t cover the total amount that you owe.

When you default on your credit card, your credit will definitely suffer as a result and your account will most likely be sent to collections. Also, fees will be added to your debt and collections will make endless phone calls and various attempts to collect.

Don’t Let It Come to a Default

The consequences of defaulting on a loan can be harsh, so it is best to avoid the default altogether.

default on a loan

If you run into financial trouble, then you must communicate with your lender and explain that you are having a hard time making payments.

A default can be looked at by your lender in one of two ways. The first is that you have given your lender a heads up and they could potentially work on a solution with you or they see that you have stopped paying and will start the efforts to collect from you. The first option is obviously the best.

If you are able to come to an arrangement with your lender, then ensure that you document all communications and get all your agreements in writing.

If you are struggling with debt, then it is a good idea to speak to a debt counsellor as they can help you to evaluate your position and set up a debt management plan if needed. Debt consolidation may also be an idea and you can find help through a number of debt relief programmes. Make smart financial decisions if you are in debt, so that you can avoid defaulting and so that you are able to manage your debt better.

5 Signs You Won’t Get Out of Credit Debt

If you think that because you pay the minimum on your credit cards each month and on time that you will one day reach that zero balance, then think again. If you are doing any of the below then you may never pay off your credit cards.

credit card debt

5 Signs You Won’t Get Out of Credit Card Debt 

Just the Minimum

Paying just the minimum required for your credit cards is the slowest way to get out of debt. This is because the minimum will not make a bigger enough dent in your debt to get rid of it.

If you are carrying around a high balance, then it could take you years to pay off your credit card at the minimum payment rate and also the interest is just going to add up over the years.

You’re Still Buying

If you are using any available credit that you have as soon as you make your repayment, then you will probably always have a credit card balance. If you are stuck in a cycle of using your credit cards, then you may never pay off your credit cards. This is one habit that you will need to break if you want to be debt free.

credit card debt

You’re Maxed Out 

The hardest credit cards to pay off are the ones that are maxed out and this is made even harder if you are only paying the minimum on your credit cards. The majority of your payment will go towards finance charges, which can be expensive. If you have multiple maxed out credit cards, then it is only going to be harder to pay them off.

Do You Know What You Owe?

Not knowing what your debt is, is a risky way to live. You are not able to make any sound financial decisions if you are not aware of what your finances look like as a whole. If you are not facing your debt, then you probably also making other bad choices that keep you in debt.

Spending More Than What You Make

The fastest way for you to get into credit card debt is to live above your means. The problem here is that it will just lead you to max out all of your credit cards, which does not make it sustainable and it’s just a bad financial move. You will never have extra money to pay off your credit cards if you are spending more than you have.

These are signs that you will never pay off your debt, but if you change your behaviours and change the way you use and see your credit cards then it is possible to tackle that debt. You will need to increase your payments to more than the minimum and stop using your credit cards, live within your means and face your debt head on.


New Year Tips to Tackle Your Credit Card Debt

It’s the new year so its time to get of your credit card debt for good and stop carring balances from month to month. If you want to become debt free then you will need to have a plan in place and be ready to be disciplined with your finances.

credit card debt

Here are some new year tips to tackle your credit card debt and become debt free.

Put It All on One Plastic

If you have multiple credit cards and you are carrying debt on all of these then one thing that you can do is consolidate the credit card debt.

You are able to consolidate in a few ways, but the best option would be to find a credit card that has a 0% interest rate for a certain period of time. The payment that you make each month will then go towards the principal amount and not the interest. Also, moving your credit card debt to one card will allow you to pay just one monthly repayment instead of having to juggle multiple payments and interest rates.

Keep in mind with these type of cards that the 0% interest period will end and once it has you will start to pay interest. This will only really work if you are able to clear your debt before the promotional period ends.

Another option that you can consider is taking a personal loan to consolidate your credit card debt with. Personal loans usually have a lower interest rate and you will just have one lender and one repayment to make each month.

Tackle the Highest Interest First

If taking on a new credit card isn’t right for you then you do have other options. One strategy that many people use is to focus on the credit card that has the highest interest rate first. This method is called the debt avalanche method.

With this method, list all your credit cards on a piece of paper, in order of highest interest to the lowest. Each month make the budgeted repayment towards the highest interest card and the minimum payment on the others. Your repayment on the highest interest rate card should be more than the minimum and an amount that you are able to afford in your budget. Once the card with the highest interest rate is paid off, you can move onto the next card and so on. This will help you to limit the amount that you are paying in interest each month.

Start Small

Another method is the opposite of the above and is called the debt snowball method. With this method, you will focus on the card that has the lowest balance first, so list all your cards from the lowest to the highest.

The idea here is to pay off credit card debt whilst maintaining momentum with small victories when a card is paid down.

However, if you use this method, you will be paying more in interest compared to the debt avalanche method, but many find this tactic motivating.

There are still more tips below, so keep reading to find out more…

credit card debt

Can You Get a Lower Rate?

If you have had your credit card for a long period of time, then it could be an idea to call your card issuer and see if you are able to get a lower rate.

Credit card companies are sometimes willing to work with you, especially if you have a track record of making timely repayments and have a good credit score. You can ask them to reduce your rate based on your past history.

You could also negotiate with your credit card issuer by showing them a competitors offer. If you find an offer that has a lower interest rate, then you can use this for negotiation.

How Did You Get Here?

Not only do you need to pay off your credit card debt, you also need to understand how you got into debt so that you can avoid being in the same position again in the future.

You will need to analyse your spending habits and behaviours that got you into debt and start making changes Credit cards can be valuable tools, but only when they are used correctly.

Can You Really Afford That? 

Many of us will find ourselves in credit card debt because we didn’t stop and think about what we are buying. Before you make any purchases you need to take a step back and think if you are really able to afford it. If not, then you should be rethinking the purchase.

credit card debt

Never Miss a Payment

It is never a good idea to skip a credit card payment as this can be harmful to your credit score and you will just drive yourself further into debt because instead of having just the one payment to make, you will now have two and a possible late fee.

Know the Signs

You are able to avoid credit card debt in the future when you know the signs. One big sign is that you end up using your credit card for necessities like food, rent and clothing. Other signs include missing payments on one card so you can pay another, ignoring credit card statements and so on. These are signs that you are heading down the wrong path and you will need to take a step back and evaluate where you are financially.

As the new year unfolds tackling your credit card debt should be a priority and once your debt is paid off, you need to avoid heading down that road again.

Avoid Overspending this Holiday Season

Many of us have the tendency to overspend during the festive season, because we feel that this is the time to reward ourselves by buying unnecessary luxury items. On top of this many online and physical stores run sales during this period to further tempt us into making impulse purchases. This can lead to further overspending and debt.

christmas money

However, when the year hits January again, all the negative effects of the spending start to catch up with credit card debt, more stress and regret.

Here are ways that you can avoid overspending this holiday season.

Know What You Going to Spend

Before you start planning your holiday shopping, you should have an idea of the amount of money that you want to spend. You need to go through the various categories of holiday spending like gifts, travel, decorations, food and so on. Your budget should then be divided between these categories and if you find that you are short then you may need to make sacrifices.

Trickery at Retail Stores

Even though you may have a budget and you are determined to stick to it, many of us still end up overspending. One of the main reasons that this happens is because retail stores are excellent at getting us to hand over our money.

They do this through loyalty cards, incentives to return to the store, retail credit, constant sales and other such tricks that get us to part with our money. You need to watch out for these and really think about if you need something or you just want it because it is on sale.

Give Yourself a Gift but Keep it Limited

A holiday trend that has appeared over the last few years in self gifting, which is where we treat ourselves to presents when we are out shopping for others. There is nothing wrong with buying yourself a treat, but you need to make sure you limit this so that you can avoid overspending.

Wait…we have some more tips for you below…

christmas debt

Don’t Pay for Convenience 

The holiday season comes with hidden costs and some of these take the form of convenience costs. Our usual routine goes out the window with the holidays and there are more things to do and responsibilities, which means that we often end up paying the premium for convenience.

It may seem easier to order takeaway or to stop at a convenience store to pick up a few groceries, even though we know they are more expensive than a supermarket.

Also, with more time spent shopping it leads to unnecessary purchases like coffees, bites to eat and more. These costs may seem small, but they can quickly add up.

Are You Cutting Down on Gifts?

If you are cutting down on the number of gifts that you will be giving this year, then you need to already create this expectation. For instance, if you usually buy your kids a whole bunch of gifts, but are cutting down to just 3 gifts this year then you need to speak with them and make sure they understand.

christmas spending

Also, if you will be making changes to your gift giving for extended family then you should let them know. You may find they also want to change how they give gifts.

Can You Travel for Less? 

If you need to travel to be with family over Christmas, then it can be expensive. However, you need to look for ways that you can save. You can shop around for the best flight deal, see if other travel dates are cheaper, pack on the go meals instead of being drawn to fast foods and so on.

Track Every Expense 

You will need to keep track of your spending daily and it is essential if you wish to avoid overspending during the holiday season. You need to stick to your budget.

The holiday season means extra shopping, so it is vital that you track your spending during the month of December. All you need is a pen and some paper where at the end of each day, you record the items that you spent money on during the day. You will then need to compare this to the budget you created.

It is not easy to avoid overspending during the holiday season, but with a little extra effort, it can be done. And by the time January rolls around, you will be thanking yourself.

Reasons Your Budget Might Not Be Working

Having and using a budget is necessary if you want to pay off your debt and to live within your means. However, many of us find that our budgets just don’t work because we find that the numbers don’t match up or that we always manage to spend more than what we budgeted for. There is a number of reasons as to why your budget might not work, which we will take a look at and how you are able to get your budget back on track.


This will help you with any debt that you are trying to pay off or just give you better management over your money.

Reasons Your Budget Might Not Be Working

Budgets Take Time

Your budget will not just automatically work and it can take a few months as you start to adjust to your new budget with your actual income and expenses. You need to give it time as you change your living habits to fall in line with your budget. You should carry on working with it and adjust your budget as you need to.

Spending More Than You Earn

If your net income minus your expenses is a negative number, then you are spending more money then you have coming in. The problem is then not the budget, but your spending. You will need to go through your budget, see what you spend your money on and make cutbacks.

This can be difficult to do, but in order to be in a better financial situation, you will need to learn how to live within your means.

Some Things Cost More

It is easy to underestimate how much you will spend on certain things like food and petrol. If you find that you are always overspending in these areas, then you will need to increase your budget in these areas. This might mean that you will need to make cutbacks in other areas.

It Only Works If You Use It

If you want your budget to work, then you will need to use it. There is no point in creating a budget, putting it away and then forgetting about it. Throughout the month, you should refer to your budget, track your spending and compare it to what you have budgeted for, so you can see how you are doing.

Wait…keep reading…there are more reasons why your budget might not work…

What About Fun?

Just because you are on a budget, it doesn’t mean that you can’t have fun. If there are certain things that you love to do, then just make sure you have applied a specific amount to these in your budget. Your budget should be reasonable, so you can still have fun but without blowing your budget.

stick to your budget

Change It, Adjust It and It Will Work

Your budget isn’t set in stone. You should actually adjust your budget every now and then. If your income and expenses change then your budget will need to reflect this. Also, major life changes like marriage, having a child etc., will also require changes to your budget.

Practice Discipline 

When you are sticking to a budget, unplanned purchases may require you to say no. You may have to put a purchase off, until you have checked your budget to see if you are able to afford it. You are able to delay some purchases until you have saved up for them.

Cheating On Your Budget?

It is possible to cheat on your budget by saying you earn more than you actually do or you say that you spend less than what you really do. Not sticking to your budget and not being truthful can have consequences like more debt or you may find that you have to go into your savings to pay for your regular bills.

Every Expense Counts

If you do not include every expense into your budget, then it may seem that it is not working when you compare your spending to your income. You need to capture every expense that you have. You can track them via online banking, ATM receipts etc.

Are All Bills Monthly?

There are some bills that are only due once a year. If you don’t include these in your budget, then they will take you by surprise. The best thing to do is to determine the monthly amount for these yearly expenses and put money away for these during the year, so that you don’t get a shock and blow your budget.

An Emergency Fund Is A Must

Having an emergency fund is a must as this will stop you from having to pay out of pocket for unexpected expenses. You can start an emergency fund by putting some money away each month until you have reached at least 3 to 6 months of your living expenses.

Budgeting only works when you are truthful, keep a record of all your expenses, make cutbacks when you need to and adjust as you go through the month. This will help you to live within your means, but can also help with debt that you need to pay.

Top Reasons to Pay Off Your Debt

You may have a plan to pay off your debt, but without any real motivation behind it, these plans can fall flat. You could start out feeling motivated to be debt free, but this can easily become undone due to the time and effort it takes to see your plan through.

debt free

If you want to stay motivated to being debt free then you need to continuously remind yourself of why you want to get out of debt. Here are the top reasons why you should want to be debt free.

Have a Better Financial Security

Your financial security is threatened by debt as it stops you from making the most of your money. The money that you are paying for debt payments could be saved and used for your retirement, your kids or just a rainy day. As soon as you become debt free, you will be able to work your money for you and become financially secure.

Stress Buster

Having debt can easily lead to more stress as you are constantly worrying about how you will be able to cover all the debt repayments you have as well as your other living expenses. Constant stress can lead to health issues like migraines and even heart attacks. Taking the steps to become debt free can reduce your stress and you will feel better about your financial circumstances.

Have Less Bills to Pay

You will have more bills to keep up with when you owe more people money. As soon as you become debt free, you will have fewer bills to worry about and manage.

You will then only have the normal things to worry about like your insurance, utilities, phone bills and other such things. These are expenses that are part of life, which don’t have minimum payments, interest charges and long term obligations.

Wait…here are more top reasons to keep you motivated to pay off debt…

Your Credit Score Gets a Boost

When you have too much debt, especially credit card debt, your credit score will be impacted negatively. Your credit score will take a hit when the balance you carry on your credit cards is high in relation to your limit.

This is also true when your loan balances are high when compared to the amount that you borrowed. Your credit score can improve when you become debt free.

Teach Your Children

When it comes to money and managing your finances, it is always best to lead by example. You can teach your children the importance of being debt free and show them by becoming debt free yourself. This will teach them valuable lessons for the future and they will know how to avoid debt and what it means to be debt free.

Spend Your Money On The Things You Like…Guilt Free

When you are paying money on debt, you will have less money to spend on the things that you really like to do in life.

debt pay off plan

This is actually one of the main reasons that people end up going further into debt. This is because they are not able to afford to buy the things they want due to the debt they have, so they end up using more debt to make these purchases.

When you pay off your debt this cycle ends and you are able to free up your money so you can buy the things that you really enjoy.

Own Your Assets

If you have a mortgage then the bank owns your home and not you, which is also true for your car if you used a loan to purchase it. When you are debt free, you will own your house, your car and the clothes that you wear.

You will not need to worry about someone taking your possessions because you were not able to afford the payments.

Future Earnings

When you take a loan or use your credit card, you are borrowing from your future income. So whatever you spend today, will be taken from your future earnings.

Debt will decrease your future standard of living as you will have less money to live on then what you have today.

In order to make the most of your income, you will need to become debt free.

Make Your Own Decisions

For as long as you have debt, your lenders will make decisions about your money and not you. Your lenders will decide how much you will pay them and when you pay them.

They are even able to increase your interest rate and your minimum payment. When you pay off your debt, you regain control over your money.

Paying off your debt is important and it may take a while to do this, especially if you have multiple debts with multiple lenders. If you are struggling with debt, you can consider a debt consolidation loan as this might make paying off your debt easier to manage. There are a number of reasons as to why you will want to become debt free and you should strive towards this.


Red Flags That Could Mean Doom for Your Money

Many people say that they feel surprised when their finances come undone, but there were warning flags that this was going to happen before you lose control.

financial trouble

If you are able to spot these red flags of impending financial trouble then you might be able to stop it before you end up in a bad financial situation. Here is a look at some of those warning signs that could spell financial trouble in the hopes that you can turn it around.

Your Credit Card Repayment Each Month is in High Triple Digits

If you are paying more than R1000 a month to cover your minimum monthly payment then you probably have too much credit card debt.

If you want to make progress on your balance and stop it from growing bigger then you need to pay well above the minimum amount that you owe. However, if you already owe so much on your credit card and you are struggling to pay the minimum then you may find it hard to get some extra cash. This means that your card balance could easily get out of control. If you are not able to afford more than the minimum then it could take years for you to pay off your balance.

You are Charging Groceries and Petrol and Not Paying It Off

People are using credit cards more and more instead of using cash and debit cards to pay for everyday essentials. This is essentially so that they are able to take advantage of credit card rewards.

However, if you are not paying these expenses off each month in full then it could be that your living expenses are more than your income and you don’t have a financial cushion for your regular expenses.

The use of credit cards for everyday purchases should only be undertaken if you are financially able to pay off the balance for these in full each month.

You Keep Going into Your Savings

If you are constantly going into your long-term savings in order to make ends meet or to pay for unexpected expenses then you may not have enough liquidity to truly pay for a financial emergency.

Ideally, you will want to have at least 3 to 6 months of living expenses saved in an emergency fund to cover an unexpected expense or a job loss. However, it’s a sign that your finances are in trouble if you find that you are using your emergency fund or other savings for expenses beyond your budget.

Don’t stop reading…more warning signs below…

You Often Pay Bank Fees

If you often end up paying for preventable bank fees like out of network ATM fees, late fees or overdraft fees then it could show that your finances are disorganised and are threatening your financial health.

Your Retirement Account Isn’t Growing

If you invest smartly and contribute regularly to your account, your retirement fund should grow significantly each year.

retirement fund

However, if you notice that your numbers aren’t really shifting then you may need to take another look at your investment strategy or you need to look at contributing more to account.

Your Income isn’t Growing

Your savings should be growing every year and so should the total amount that you take in. If your income is holding still then it could mean that you are not performing as well in your career or are not taking enough risks. Also, keep in mind that if your salary doesn’t at least keep pace with inflation then your salary is actually shrinking.

If you have noticed any of these things then you need to take a look at your finances and restructure your budget to fit with what your current financial situation is before things get any worse.

How You Can Live Within Your Means

Living within your means, means that you spend less or equal to the amount of money that you bring in each month. This is usually a lot easier said than done for many of us. This is because loans, credit cards, savings and even your emergency fund allow you to spend more on things that what your income would normally allow you to.

live within your means

However, this is not a sustainable lifestyle and eventually, your frivolous spending will catch up with you. Your savings and your access to lines of credit will run out and you will then have to make drastic changes or you could face financial ruin.

Here are some key steps to be able to live within your means and avoid racking up the debt.

What Do You Make?

The first thing that you will need to do in order to live within your means is to know what your means are. You will need to know what your net income is, which appears on your paycheck. Also, you need to know how often you get paid, is it every month, every week, every 2 weeks and so on. Most of your bills are paid monthly, so you will need to know what you get paid each month.

Once, you have determined what your means are each month, you will know exactly what you have to work with.

Spend Less

Now that you know how much you make, you will need to focus your efforts on reducing your spending so that it fits your income. Use a budget to plan your expenses as well as to keep track of your spending. If you have tried the budgeting tool before and it didn’t work for you, then you need to try it again. Often, you will just need to make some minor changes in order to get your budget to work.

You can also try a method called backwards budgeting, which is where you write down your income and then subtract each expense that you pay each month. If at the end you have a negative number then you are spending too much.

Give Your Income a Boost

If you have got your expenses down to the absolute minimum and you are still spending more than what you earn, then you need to look at ways you can boost your income.

Make sure that you are claiming any benefits that your employer offers and that you are signed up for the right health and disability benefits. You can consider changing jobs to a higher earning one or you can look at picking up a second job in order to make ends meet.

The fact is that you need to look at ways where you can make enough money each month to pay for all your necessary expenses.

Don’t stop reading there are still more ways you can learn to live within your means…

Avoid Relying On Credit

You need to stop relying on your credit cards to meet ends meet as this shows that you are not living within your means. In your budget, you need to leave out all your credit cards and loans as a way to make your expenses.

Any type of credit has to be paid back, so if you are relying on these then you will end up in a cycle of debt as you will pay your balance off, then reuse it to make your necessary expenses and so on. You need to stop the cycle and the debt and learn where you can make cutbacks and live with what you have.

Stop Keeping Up With the Joneses

You have to resist that pressure that you need to have the same material things as those that are around you, that you see on television or even on social media. You might be able to fake wealth through loans and credit cards, but this is only for a short period of time and you will end up paying for it later and you will be paying more.


Save Rather Than Credit

Many of us will use our credit cards to make large purchases that we are not able to afford straight away like a new TV. However, instead of using your credit card for these buys, rather put some money aside each month and once you have saved up enough you can buy the item without having to go into debt. If you are not able to put money aside to save then you can’t afford the item at all.

Have the Crucial Emergency Fund

When you have a savings account that is solely for emergencies, you will be able to pay for any financial emergency that may arise without having to use your credit cards. Your emergency fund should at least be 3 to 6 months of your living expenses, but even having a few thousand in the fund will help with some minor emergencies every now and then. Something is better than nothing.

Living within your means can be difficult, especially if you have relied on credit cards and loans in the past to pay for things, but this will just lead to financial issues later down the line. You may have to make difficult changes, but it is worth it as you will not be trapped in debt and you will become financially savvy.

How Does a Debt Consolidation Personal Loan Work?

A great solution to high interest debt is a debt consolidation personal loan. You are able to use these types of loans to pay off any type of debt that you may have, from unsecured loans to credit card debt. Even though a debt consolidation personal loan is a great finance management tool, it won’t be for everyone, so you will need to carefully consider this option and weigh up both the advantages and disadvantages before you take on this loan.

debt consolidation

What Exactly is a Debt Consolidation Personal Loan?

Debt consolidation is where multiple debts are taken and are made into just one. You are able to do this through personal loans, credit card balance transfers and mortgage loans. Money that you borrow for the purpose of paying off multiple debts is considered a debt consolidation loan as you will have one payment to make instead of several.

Specifically, a debt consolidation personal loan is a personal loan that is used to pay off debt. A personal loan can be applied for at a bank or an online lender. You will fill out an application form and your income, credit score etc. will be analysed before a personal loan is granted to you.

The benefit here is that a personal loan will usually have a lower interest rate than a credit card, but the interest rate will be higher than a car loan or mortgage because it is an unsecured loan. This means that there are no assets that can be repossessed by the lender if you fail to repay.

The Advantages of Debt Consolidation Personal Loans

There are a number of advantages to debt consolidation personal loans that you should take into account.

Firstly, you are able to use this type of loan to consolidate numerous payments into one, which will make your debt easier to manage and you are less likely to forget a payment which would incur late fees.

Secondly, you will be able to save money on interest as a personal loan generally has a lower interest rate, so transferring your high interest debts to this type of loan saves money.

Thirdly, your debt repayment will generally be lower than what you are currently paying with your existing debts.

Lastly, a personal loan will usually have a fixed payment and term, which means you will know exactly what you will need to pay and how long you will be paying the debt off for.

You might be wondering how and where you can get a debt consolidation personal loan from…

How to Get a Debt Consolidation Personal Loan

The first thing that you will need to do is to determine how much debt it is that you want to consolidate. You will need to add up all of your high interest debts that you want to be free from and gauge the amount that you owe. You are then able to apply for a consolidation loan for that amount.

However, applying doesn’t mean that you will get the loan as the lender will take into account various factors before granting the loan. You will usually need to have a decent credit and income in order to get a low interest rate loan, but you will find lenders that give personal loans to those with bad credit, but you will still need to have an adequate and steady income in order to get the loan.

If you are approved for the loan then you will receive the terms of the loan, which will include the amount that you will need to pay and for how long as well as the interest rate and fees.

Once you know how much the loan will cost you, you will need to compare it to the cost of paying off your debt without the loan. If you determine that you will save money by taking the debt consolidation personal loan then you can accept.

The lender will then issue you with the money that can then be used to pay off the debts. You will need to create a budget and avoid incurring debt again once you have paid off your debt.

Where to Apply

You are able to apply for a personal loan for debt consolidation at your local bank, but the approval criteria is pretty strict so you will need to have good credit and adequate income.

apply for a debt consolidation loan

If the bank is not an option for you then you can consider online lenders. There are a number of online lenders that offer personal loans that you can use how you like, including debt consolidation.

The approval process with many of these lenders is less strict than a bank and they offer faster approval. With online lenders, you will generally only need to fill out an online form and may need to email or fax certain documents like your payslip as a proof of income.

Once, the online lender is sure that you can pay the loan back they will transfer the money to your bank account. There are even online lenders that will not run a credit check on you and will only look at your ability to pay the loan back.

If you are still struggling, you can seek the help of a debt counsellor that will help in managing your debt with you, by creating a budget and a debt management plan, where you can start paying off your debts.

A debt consolidation personal loan is not for everyone, but it is a viable option for those that are struggling with multiple high interest rate debts as you will be able to pay these off and only pay for the personal loan that will have a lower interest rate and monthly repayment. It is important not to incur any other debt during the process and to ensure that you are able to afford the debt consolidation personal loan and that it is cheaper than what you are paying currently.