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How to use debt consolidation to manage your company's debt

by , 10 April 2014
According to the FinScope South Africa 2013 financial survey, about five million South Africans are battling with over-indebtedness. Businesses can drown in debt just as easily as individuals can. And that's where a debt consolidation loan comes in. Read on to find out what it is and how it can help your company to manage debt.

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What is a debt consolidation loan?

SA Home Loans says a debt consolidation loan is a loan you take out to pay off several other smaller loans. And while most people use it to get out of personal financial scraps, it's a useful tool for companies too.

But how exactly does it work?

The best way to explain is to provide a practical example…

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Here's a practical example of how you would use a debt consolidation loan to manage company debt

Henk Heymans an Audit Partner at RSM Betty & Dickson and one of the Accounting & Tax Club's experts says debt consolidation or a debt consolidation loan is often used in debt counselling where a person's debt gets out of hand.

Heymans says, for example, 'if you owe on two credit cards, a clothing account, school fees, are behind on your car instalments, etc. you go and negotiate a credit line facility, or even a second bond and you use that facility to pay off all the other creditors.'

He says when you've done this; you've consolidated your debt on one account.

And you can do the same if you have debt issues in your company – including problems with playing your suppliers.

The good thing about a debt consolidation loan or with debt consolidation is that you get to secure a lower overall average interest rate. And this helps you manage your debt better.

In South Africa, there are companies that offer consolidation loans. If you want to find out about them, contact Debt Consolidation South Africa as it believes 'only a few companies offer great service and consolidation loan options.'

There you have it. Now that you know what a debt consolidation loan is, why not consider it to manage your company's debt?

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