Rolling store cards, a credit card and two loans into one instalment feels like relief, but it only saves money if the new rate is lower, the old accounts are closed and the term is not stretched. A checklist before you apply.
A consolidation loan is a personal loan used to settle several existing debts so that you are left with one instalment on one date. Capitec, Absa, Nedbank and African Bank all offer it on their standard personal loan. It is a useful tool and a common mistake, depending on three things: the rate, the term and what you do with the old accounts.
How it works
You apply for a loan equal to the settlement balances of the accounts you want to close. The bank either pays those creditors directly or pays the money to you to settle them. From then on you owe one lender, at one rate, with one debit order. The sales pitch is a lower monthly payment; the honest measure is the total you will repay over the life of the loan.
When it saves money
Consolidation works when the new rate is meaningfully lower than the weighted rate of what you are replacing. Store cards and credit cards are often priced at or near the National Credit Act ceiling for unsecured credit; a bank personal loan to a client with a clean record can be quoted several points lower. It also works when it replaces several monthly service fees with one: three accounts at R69 each cost R207 a month, one account costs R69.
Example: R60 000 spread across cards at an average of 24% costs about R1 200 a month in interest alone. Consolidated into one loan at 17% over 36 months, the instalment is roughly R2 140 and the total interest about R17 000, against far more if the cards had been paid down at their minimums over the same period.
When it costs more
The trap is the term. A lower instalment achieved by stretching the loan to 72 or 84 months usually means paying more in total, even at a lower rate, plus seven years of service fees. The second trap is the fees themselves: a new initiation fee of up to R1 207,50 and new credit life insurance are added to the loan. The third and most damaging trap is behavioural: if the settled credit cards stay open and are used again, you end up with the consolidation loan and the old debt, which is how people arrive at debt review.
Consolidation is not debt review
Debt review under the NCA is a formal process through a registered debt counsellor for people who cannot afford their instalments. It restructures payments, stops legal action and flags your record at the bureaus until you are cleared. A consolidation loan is ordinary credit for people who can afford the new instalment; it is not available to someone already under debt review. If the numbers do not work even after consolidation, a debt counsellor is the right call, not another loan.
Cheaper alternatives for homeowners
If you have a bond, a further advance or an access facility on the home loan is usually priced far below any unsecured loan, because the property is the security. It is the cheapest way to consolidate, with one serious caveat: the debt is now attached to your house, and stretching it over the remaining 15 or 20 years of the bond turns a small saving in rate into a large increase in total interest unless you keep paying the higher instalment.
A checklist before you apply
Get settlement quotes from every account you want to close and add them up. Get a written quotation for the consolidation loan with the total cost of credit. Compare that total with what you would pay by keeping the accounts and paying them off at the current rate over the same period. Choose the shortest term whose instalment fits your budget. Then, on the day the loan pays out, settle and close the old accounts and ask each creditor for a paid-up letter. Keep one card open only if you can keep it at a zero balance.
