10 Apr Calculating the Financial Impact of Debt Review Removal
Debt Review removal can certainly impact your finances, though not directly. It can definitely open doors to positive changes, like a better credit score and debt management flexibility. Read on to discover how debt review removal impacts your finances.
Benefits of debt review removal
Debt review removal comes with a host of benefits to your financial standing.
Improved credit score
Removing the debt removal flag from your credit score through credit clearance. Removing the flag can make accessing loans and finance cheaper and easier. Beware, though. You can only remove debt review before the Magistrate’s court has approved your application, otherwise you’re stuck.
Yes, your credit score might still reflect past debts, but if you’re fully paid up, you can an ITC clearance certificate for each debt and submit it to major credit bureaus, who are then legally required to remove the debts from your history. However, you now have the opportunity to build your credit score with positive habits. This includes:
- Making timely payments on all your bills and debts.
- Keeping credit card balances low compared to the credit limit (ideally below 30%).
- Diversifying your credit mix (e.g., having a credit card, a loan, etc., if manageable).
Remember, rebuilding your credit score takes time.
Access to better financial products
With a heightened credit score comes access to better financial products. You may qualify for lower interest rates on loans, credit cards, or even insurance. This can save you money over time. That’s because your credit score is a reflection of your responsibility with money. It’s what lenders use to assess whether they should loan you money.
Debt management flexibility
Debt review consolidates debt payments and restricts access to new credit. After removal, you have more control over managing your debt. You can explore different repayment strategies or negotiate directly with creditors. If you need help with debt review removal, remember to contact Cape Town Legal Consultants.
Calculating the Impact
This is how to calculate the impact debt review removal will have on your finances.
Interest rate savings
you can leverage a loan calculator to simulate different loan scenarios with varying credit scores. Here’s how you can do it:
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Choose a Loan Calculator: A popular option is the NerdWallet loan calculator. It allows you to input factors like loan amount, loan term, and interest rate to estimate your monthly payment and total interest.
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Set Up Your Base Scenario:
- Enter your desired loan amount (e.g., R10,000).
- Choose a loan term (e.g., 5 years).
- Estimate a higher interest rate that might apply with a lower credit score (e.g., 15%). You can find average interest rates for different credit score ranges online.
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Run the Calculation: With the above information, click “calculate” on the loan calculator. This will provide an estimate of your monthly payment and the total interest paid over the loan term for this scenario with a lower credit score.
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Simulate Improved Credit Score Scenario:
- Now, adjust the interest rate to reflect a scenario with a better credit score (e.g., 10%). You can find average interest rates for different credit score ranges online.
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Compare and Calculate Savings:
- Run the calculation again with the lower interest rate.
- Compare the total interest paid between the two scenarios. The difference represents the potential interest saved due to the improved credit score.
For example, let’s say the calculator shows you pay a total of R3,294 in interest with a 15% interest rate (lower credit score scenario) over 5 years for a R10,000 loan. With a 10% interest rate (improved credit score scenario), the total interest might be R2,473. This would result in a potential interest saving of R821 over the loan term due to the improved credit score.
Debt consolidation savings
Remember to research different loan consolidation options available with your new and improved credit score. This can make making one single payment so much easier. See if you can find a lower interest rate than your previous debt review plan.
Now that you know how debt review will impact your finances, it’s time to initiate the process. Contact Cape Town Legal Consultants for a smooth and swift exit today!