The real question behind this is. Is a consolidation loan better than debt review? Well, 99.9% of the time the answer is no. When you think about it, it can’t ever be a good thing to make new debt to pay of old debt. If you are struggling to make all your payment now. How would you be able to do it with a new loan?
A Consolidation loan might look like an attractive option but, there are things you need to know before making that decision. Here is our list of pros and cons of a consolidation loan.
A Consolidation loan is when you apply for a new loan to consolidate all your smaller loans into one monthly loan. Consolidation loans are just one of many financial services out there to help people manage their debts.
Although loan consolidation has its benefits, it also has its negatives that can result in more financial trouble for you as a consumer.
Yes, this is definitely the main reason why people would want a consolidation loan. You don’t need to worry about paying or forgetting to pay every one of your creditors.
This is hardly ever the case and it could give you the wrong perception of where you stand with your debt. Thinking you are paying less can do more damage, as you then want to spend more.
A Consolidation loan is usually stretched over a longer period. Which means your total interest payable add up to more expensive debt. Paying off short term debts like credit cards and personal loans over much longer periods, even at a slightly lower rate, actually means paying a lot more interest in the long run.
As mentioned in the pros a lower monthly instalment can give you the perception of being able to afford more debt. A Consolidation loan will be able to give you some short term relief, it will keep you paying interest for up to 20 years
Consolidation loan companies often charge very high upfront fees that are set close to the maximum allowed. This means that your monthly installment is mostly used to pay off interest, you end up struggling to actually pay off your debts.
All revolving credit agreements cannot be consolidated. This means debt like credit cards, store accounts and DSTV accounts. House bonds and vehicle finance also can’t be part of your consolidation loan application. With other debt counselling solutions like VDR or Debt Review all debts can be included. Click here to find our more about these options.
A Consolidation loan merely replaces your old debt with new debt. You do not get any benefits off simply making new debt. This is not the right solution if you are over indebted and struggling to make your payments every month.
Yes, a consolidation loan seems like a good idea at first and could give you some initial relief. If you are struggling to pay your debts every month, this is not the right solution for you. If you need assistance in planning your finances or if you need us to explain all the options for you. Contact us for an obligation free assessment. We have multiple debt counselling solution that can help you reduce your debt the right way.