With household debt levels in South Africa rising, many home owners have turned to bond consolidation in an attempt to better their financial position, by means of utilising a home loan or existing bond account to pay off several other smaller loans. This is particularly appealing to many debt-ridden consumers, in that it results in substituting higher interest short term debt (such as traditional sources of credit, namely overdraft facilities, credit cards and personal loans) with lower interest long term debt.
Additionally, by consolidating smaller loans into one larger loan, the result may be decreasing your monthly debt repayment which may lead to improving your cash flow. Thus, for many who have over-extended themselves financially, the option of bond consolidation may offer the appealing prospect of a singular and more manageable monthly bond repayment.
It is, however, important to note that by consolidating one’s multiple debts under one’s bond, strict financial discipline is required, and it is therefore imperative to limit future spending in order to manage one’s debt effectively.
Moreover, if you have opted to go this route, it is advisable to aim to pay off the additional amount borrowed in terms of the existing bond as quickly as possible in order to get your home loan liability back to where it was.
Thus, by taking the money that you were using to pay off your debts every month and adding that money to your bond repayments, it can result in shortening the period of your extended bond, which in turn can result in saving thousands of Rands in interest. But most importantly, in order for you to obtain the maximum benefit out of opting to go the route of bond consolidation, you should at all costs avoid falling into the same patterns that resulted in your over-indebtedness in the first place.
Always remember that owning a property provides significant financial stability and is one of the best ways to accrue long-term wealth. Therefore, if you have opted for bond consolidation and you do not utilise it in the most efficient manner, it may cause your most significant asset to devalue over time.
It is evident that there are clear advantages to the concept of bond consolidation, especially for those who are inundated with debt.
It offers the prospects of a more manageable financial standing and the opportunity of getting back on one’s feet. However, it is apparent that in order to be effective, avoiding new debt, old spending habits as well as avoiding continuous borrowing against one’s bond is imperative for the debt-ridden consumer to gain some much-needed financial stability once again.
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