Put all your debts in one basket: the advantages of debt consolidation

The economic downturn has had far reaching repercussions, and due to the subsequent lack of available credit, settling debt has become even more problematic than ever before. One method that is used to settle outstanding debt more effectively is debt consolidation.

Debt consolidation involves taking out a loan in order to pay off several other loans or outstanding debts. The reasons debt consolidation is advantageous is that it secures a lower interest rate or fixed rate, and simplifies the debt repayment process through lower monthly repayments.

Debt consolidation often involves taking out a secured loan against collateral, for example a house or mortgage. This collateral is what allows for a lower interest rate, as if the asset owner defaults on debt repayments, it will lead to the foreclosure of the collateral. Therefore, the risk to the debt lender is lessened in this case, so the interest rate is lower than in unsecured circumstances.

Debt consolidation is often useful when paying off credit card debt, as credit cards carry a much higher interest rate. Therefore debt consolidation can balance out the high interest rate of the credit card repayments with the lower interest rates against collateral, thereby accelerating the repayment process. 

Despite the potential financial benefits that debt consolidation offers, it is important to speak to a qualified debt advisor before consolidating any debts. Debt consolidation, as discussed above, is ideal for those who have multiple debts and want to simplify these debts and reduce monthly payments.

However, debt consolidation, although attractive in theory, may not be the best solution for your individual financial situation. This is especially relevant if it is not likely that will be able to repay your debt, even over an extended period. Debt consolidation is also not favourable for debts with a lower annual interest rate or APR (Annual Percentage Rate), as you will pay more interest in the long term.

Therefore, debt consolidation offers a theoretical advantage to consumers with high interest debt. However, the threat of predatory lending exists, and so consumers should be wary of unscrupulous companies when refinancing debt repayments. To clarify, predatory lending is the practice of unfairly placing customers in undesirable financial circumstances through overburdening them with several loans. According to www.investordictionary.com, predatory lending is “…the practice of convincing borrowers to agree to unfair and abusive loan terms.”

According to Ian Wason, the MD of a prominent independent mortgage brokerage, as quoted in an article on www.justmoney.co.za, “Lending criteria and loan to values are fluctuating almost daily. Consumers need to be approaching every possible lender when trying to purchase a new home or consolidate their debt. If they don’t, they could be missing out on saving themselves a fortune.”

In order to go about consolidating your debt, make sure you speak to a qualified lender such as Bassetto Investments. Offering personalized loan services, Bassetto Investments can help to advise you on personal loans that can potentially help to settle your debt more efficiently. For more information about the financial services that Bassetto Investments has to offer visit www.bassettoinvestments.co.za

Source:

Debt Consolidation article. Available at Wikipedia.org [Accessed 7 March 2009]

Debt Consolidation information. Available at debtconsolidation.co.za [Accessed 7 March 2009]

Definition of “Predatory lending”. Available at investordictionary.com [Accessed 8 March 2009]

“Home Loans are like a box of chocolates”. Available at: justmoney.co.za [Accessed 7 March 2009]

The Why and How-to of investing in the Stock Market

The global economic downturn has negatively affected stock markets worldwide, most notably the Wall Street stock exchange, which has reached a 12 year low. According to a report on Engineering News Online, “Wall Street shares tumbled after investors lost faith that the US government will be able to stabilise the financial system”.

However, this does not mean that you should give up investing in the stock market altogether. Despite plummeting share prices, it is still possible to invest in shares. All you need to do is better educate yourself on the risks involved, and how and where to invest.

The assumption that only the wealthy can invest in the stock market needs to be debunked, as in fact, you may unwittingly already have invested in shares, for example unit trusts, life assurance policies and retirement annuities. If you have over R5000 to invest, it is possible to increase your wealth through buying shares in the local stock market, namely the Johannesburg Securities Exchange (JSE Limited).

Shares are issued by companies in order to raise capital, and these companies can be listed on Securities Exchange. Companies that are listed are compelled to meet certain requirements, and have their accounts audited and financial history examined. Therefore, investing in a listed company guarantees a greater degree of protection, as transparency is essential for JSE listed companies.

Shares that are bought in certain companies are then traded in the stock market. Depending on supply and demand, the fluctuating prices of shares determines their potential value. Shareholders are then given a share of any profit made by the listed company, which are known as dividends. These dividends are usually paid to shareholders quarterly, annually or bi-annually.

The more profit a listed company makes, the higher the value of the shares - which leads to an increase in the share price. Additional profit can also be made by selling your shares when they are worth more than when you bought them. However, as the current global economic downturn demonstrates, share value plummets when companies cease to make a profit.

If you buy shares in a listed company, you become a shareholder. Shareholders are kept up to speed with developments in the financial standing of company, and shareholders meet regularly to vote on important company issues, such as the appointment of company directors and the company’s future.

Despite the global economic gloom, the truth is that investing in the stock market is risky either way, and there is never any guarantee that you will make money by investing in shares. However, if you are patient, investing in shares can provide you with adequate return in the long term. It is also important to only invest money in the stock market if you can genuinely afford to do so.

If you are looking to make small investments in the stock market, with the help of a qualified consultant, visit www.bassettoinvestments.co.za. This specialized financial services company can provide personalized assistance with small investments, as Bassetto Investments offers “… the chance to invest small amounts, while yielding high returns.”

Source:

Du Preez, L. (2004) “All about investing in the share market” Available at: persfin.co.za [Accessed 8 March 2009]

Reuters (2009) “Oil extends losses after Wall St plumbs 12-year low” Available at: engineeringnews.co.za [Accessed 8 March 2009]

Personal loans: The Good, the Bad and the Ugly Debt

Personal Loans, or money that is borrowed from a bank, institution, or lender as a lump sum, can seem an attractive option to finance purchases and investments. Unfortunately, personal loans present problems when it comes to repayments, and can create bad debt- putting unnecessary financial pressure on those who are already struggling to cover expenses.

Personal loans, to clarify, are classified according to in two categories, namely secured and unsecured loans. Secured loans are those that are attached to collateral, for example a house or mortgage, against the sum borrowed. An unsecured loan does not require collateral, but a higher rate of interest is charged on repayments.

According to an article entitled “Poll: 2009 could be worse” on Fin.24, Andy Gilder from justmoney.co.za stated that “The trend for the start of the year has shown a sharp increase in applications for personal loans and credit cards and it would suggest that people are looking for money to cover their debts and holiday indulgences…”

However, despite the financial assistance that personal loans can potentially offer to make up for overspending, the reality is that taking out a personal loan to finance commodity purchases is not a good idea. This is because as it can lead to bad debt and consequent credit unworthiness. Instead, opening a bank account and saving up for a coveted purchase on a regular basis is a much more effective, and risk free, option.

The same applies to taking out a loan to cushion your monthly expenses. Instead, you should be making an effort to live within your means, and take the time out to plan and set yourself a monthly budget is much more effective. The current global economic downturn is a lesson in frugality, and should encourage us to only buy what we need, and to reduce our reliance on credit and fluctuating investments.

In an article entitled “Don’t get caught in a personal loan trap”, an analyst at moneyfacts.co.uk stated that “…rising unemployment and a declining economic outlook have meant the risk of customers defaulting on unsecured lending has increased”. The result, according to the analyst, is that “…borrowers are paying a significantly increased rate than they were 18 months ago…”

The truth, especially considering rising interest rates, is that if you do not have enough money to cover all your monthly expenses, you certainly won’t have enough to pay back a personal loan. Another reason why personal loans are not always feasible is that they require a long term financial commitment.

For example, taking out a personal loan to finance a vacation can cost you more than double due to interest rates. Once again, the less than ideal state of the current global economy demonstrates that consistent income and the value of stock market shares cannot be guaranteed.

Therefore, personal loans are risky as they can potentially damage your future ability to obtain credit for legitimate loans. Since the introduction of the National Credit Act in South Africa, it has become imperative that bad debt is avoided in order to maintain the credibility of your credit record.

Source:

“Make the best pick from the array of personal loans” Available at: iseekloans.com [Accessed 6 March 2009]

Meakin, T. “When is a personal loan a bad idea?” Available at: helium.com [Accessed 6 March 2009]

Routledge, S. (2009) “Don’t get caught in a personal loan trap” Available at: myfinances.co.uk [Accessed 6 March 2009]

Sapa (2009) “Poll: 2009 could be worse” Available at: fin24.com [Accessed 6 March 2009]