“I want to clear my debt this year which I believe I can do if I focus. Should I consider debt consolidation where I use one loan to clear all my debts and then commit to paying off the one loan over 18 months? The debt is spread across SARS, personal loans, Nashua and my bond. I struggle to make ends meet generally and do not meet all the obligations,” writes Zoya

Maya replies: Debt consolidation does carry costs like upfront administration fees so you need to consider this additional cost. The other problem with debt consolidation is that it only works if you are disciplined and take on no other debt. The interest rate is also important – will you be paying more interest than you are currently? The banks will encourage you to take debt consolidation as they make money on it so you need to do your own calculations.

A good starting point is to contact the National Debt Mediation Association, they may be able to help you with some of the calculations and advise you on the best route forward.

Consolidating into your mortgage

The best option would be to consolidate into your mortgage so speak to your bank about consolidating your debt into your bond and then increasing your bond repayments. This will be at a lower interest rate than another loan but the key here is that you still pay off the debts over 18 months and do not allow it to be paid off over 20 years otherwise it becomes very expensive.

If you consolidate into your mortgage make sure you can afford the repayments and NEVER skip them – you do not want to lose your home!

Affordability

Another point to consider is that the bank may not be able to consolidate your debts if the repayments are unaffordable – this is something you need to discuss with your bank.

If you are unable to consolidate then I suggest you speak to each of your creditors and ask them to restructure the debts so that they are affordable (they can extend the length of the payment) and then have debit orders going off at the beginning of the month to pay these.

You are still young and you need to use this opportunity to get out of debt – even if it means eating baked beans on toast! So make a commitment and stick to it, the results will be liberating!