Before considering any methods of dealing with debt, consumers should first understand the pros and cons, as well as the processes involved. Consolidation of debt is no different, and consumers should understand all things involved in loans for consolidation of debt, including whether or not their situation qualifies them for such a loan.
Qualifying for a debt consolidation loan entails meeting all the prerequisites stipulated by the lender in their loans terms and conditions and although various lenders have different measures, there are general guidelines that do apply.
In order to qualify for a secured debt consolidation loan, homeowners get preference as the loan can be taken out on the property or as a home loan extension. This means that the home can be used as collateral, thereby ensuring a lower interest rate. Owning a home does not mean that one can lend recklessly, the bank will always consider your monthly income, and only lend the amount that the consumer can repay within their income.
Unsecured loans for consolidation of debt can be obtained without any collateral, but the applicant must have a good credit record and be prepared to pay a higher interest rate. Although some lenders will provide credit to someone with a bad credit report, it is not advisable that anyone who is already struggling with debt apply for unsecured loans and a better option would be to make an appointment with a debt counsellor who will advise on the right methods to manage debt.
Consumers considering consolidation of debt should research their loan options thoroughly and be prepared to pay off the debt for a longer period, with the possibility of a higher total sum being paid.
Consolidation of debt should not be viewed as a way to avoid paying debts or to minimize debts, because at the end of the day, what is owed to a creditor must be repaid. It is up to the consumer to find the correct way to do so, whether it is via consolidation of debt or debt counselling.
It also includes the lessor of a property. Therefore if a consumer rents their home, their landlord can be considered their credit provider.
According to The National Credit Act of South Africa, a broad definition of a credit provider is anyone that exchanges money, goods, or services under an agreement from the consumer that they will return the value of the goods, services, or money over an agreed upon period of time, with possible added interest..