An analysis by mortgage and debt specialists Bondbusters has established that some 66 percent of all their debt consolidation clients are using the product because they need to ease their cash flow pressures.

Debt consolidation, the process by which consumers can pool together debt like credit cards and vehicle repayments into their home loan repayment, is fast becoming a popular product amongst South Africans as they continue to battle against the increasing cost of living.

SA consumer under pressure

Ian Wason, MD of the group, says that the results show just how much pressure the South African consumer is under at present.

"Two years ago, debt consolidation was a product that provided savvy consumers with an opportunity to pay less interest across all their debts, whilst overpaying into their new bond. While this is still the case, we now find that most of our customers are turning to debt consolidation because they cannot afford to keep up their debt repayments in any other way, not because they are savvy or streamlining their repayments."

The analysis conducted by the group found that 66 percent of all its debt consolidation clients were consolidating to 'relieve cash flow', 20 percent of their clients were 'taking advantage of a lower interest rate' and a further 14 percent were 'doing it for the ease of one monthly payment'.

By consolidating debt into a home loan a consumer takes advantage of the lowest possible interest rate, but includes short term debt over the extended term of the home loan. Wason maintains that, as the client will be paying more interest over the 20 year period, it is not always advisable to drag short term debt into the long term. However, he says, the vast majority of clients simply do not have a choice as they cannot meet their current debt commitments.

"Once clients have consolidated we always advise them to overpay as much as they can afford into their bond — this dramatically reduces the time period of the bond and means that the client is paying the lowest interest rate possible. Consolidating one’s debt does not mean that consumers now have more money for luxuries, but it means that consumers can survive on their current cash flow and start reducing their overall debt."

Consolidate all your debt into your bond and decrease your monthly repayments in the process

Anyone with equity in their home can qualify for debt consolidation, meaning that if the value of your house is greater than the outstanding amount on your bond, you may be able to consolidate all your other debt into your bond and decrease your monthly repayments in the process.

"The stabilising of the interest rate has not made things better for South Africans; it has simply ensured that things have not become any worse. Those who were already struggling to pay off their debt will continue to do so and those who are falling behind or unable to make full debt repayments on items like credit cards will continue to be paying interest on interest and falling further behind.

"A further factor which is confusing the client is conflicting reports from lenders on whether they will look at debt consolidation and what debt the lenders will consolidate, making using a specialist debt management business an increasing necessity."

www.bondbusters.co.za

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