That would defeat the purpose of using such a cheap form of credit.
So you score by using your home loan only if you use it wisely – and the same can be said for debt consolidation loans.
The appeal of debt consolidation is that it lets you simplify your affairs by using one large loan to pay off all your smaller debts.
But it would be true for many people in debt, and the remedy for them is behaviour change – such as learning to live on less – not more debt.
People who apply for a debt consolidation loan are either already financially stressed or in danger of going that way.
And too many mistakenly expect debt consolidation to be a panacea for all their ills – when it’s more like putting a plaster on a serious wound. While that is true, it’s also true that there are savvy ways to deal with debt.
“It’s a short-term fix, not a remedy for the underlying problem,” says Paul Slot, the president of the Debt Counsellors’ Association of South Africa. For example, your home loan is usually your cheapest form of credit.
In this way, you go from having numerous creditors and credit agreements, with various terms, interest rates and monthly fees, to having one loan with one creditor and being liable for one monthly fee.
Typically, your debt consolidation loan would provide you with a lower overall average interest rate over a longer loan term.
For people who are in danger of defaulting on their loan repayments, Penwarden says debt consolidation may be their only option.