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Managing your debt

Debt Consolidation is a way of paying all your debts with one new loan. You may have too many debts to pay each month, some at very high interest rates. If you qualify for Debt Consolidation you will be able to borrow a certain amount of money at a lower interest rate and pay off all or most of your monthly debts as fast as possible. The money for this loan will be advanced by your mortgage lender if you qualify. You need to own your own home and be paying off a first mortgage bond or have finished paying already. If the mortgage lender considers that you will be able to pay off a second bond on your home, they will advance you a certain amount of money. This amount will depend on how much you still owe on your home, your payment history, and your ability to pay off both bonds at once. You may also qualify for a re-advance, which means that the lender advances you a sum of money up to the original amount of the first bond. Bond interest or home loan interest is usually at a much lower rate than other interest rates, because the loan is secured by your property. The best source for a new loan will be the equity in your own property which has usually built up some increased value over time. The new loan that you get is then used to pay off all your short-term debts or at least the ones that carry the highest interest rates.

What you need to be very careful of is defaulting on this type of loan. If you don’t pay at least the minimum amount to the credit provider every month, you could easily lose your home, and this is the last thing you need to happen. It would be a very good idea to pay off the new loan as fast as you possibly can, and forego all new impulse purchases like a new car, a holiday, a pool etc. until you have managed to pay off the new loan. Many people who receive a loan of this nature tend to forget the reason they took the loan in the first place, and start spending the money on other things instead of paying back the loan as quickly as possible. Try to make a larger payment than the minimum every month, and in this way you will save a fortune in interest, and reduce the term of the loan as well.

You could consolidate your debt by taking out a personal loan, but you should only consider this once you have tried to take out a second bond or a re-advance, as personal loans usually carry very high rates of interest, and this is surely what you want to get away from. You may want to consult a debt expert before you do anything rash, as you need to get yourself out of debt rather than deeper into debt.

Be very aware that by taking out a debt consolidation loan you are replacing short term debt with long term debt, as the term of a bond is usually at least 20 years. This means you will be paying off your loan for many years to come. Once again, the best way to save interest and shorten the term of the loan is to pay back as much as you can possibly afford every single month and never miss a payment.

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