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What is debt consolidation and how does it work

For many South Africans the burden of debt is all too real. Large numbers of South Africans are spending significant chunks of their incomes servicing loans.

South African money

Last year’s FinScope South Africa survey showed that around five million South Africans are battling with over-indebtedness. That equates to 14% of the population over the age of 16.

Some of this will be long term debt in the form of home loans, but the real problem is short term, high interest debt in the form of personal loans, store credit and credit cards. The compounding effect of the interest on this debt is what is eating into disposable incomes all over the country.

For anyone who finds themselves in a situation where their debt is overwhelming them, a first step toward trying to address this may be debt consolidation. Most of South Africa’s major banks and financial services companies offer these solutions.

“Debt consolidation is a good idea if you are battling to keep track of your debt due to it being spread across a range of accounts and loans, if you are unable to meet the monthly required minimum repayments or if you simply want to find a better rate,” explains Johan Maree, the CEO of FNB Credit.

“It is an effective way of taking control of debt as it allows you to merge retail store debt, short term loans, personal loans and other credit card debt into one account,”

The principle idea behind debt consolidation is that it allows an individual to pay off all their existing debts and be left with only one remaining creditor.

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