Two disadvantages of debt consolidation
Privacy Matters outlines the two disadvantages of debt consolidation:
Disadvantage #1: Debt consolidation isn't for everyone
For example, when you go with a debt consolidation plan, you're required to stop increasing your overall debt, which often includes limiting the use of your credit cards.
'If you want to consolidate, many firms will ask you to stop using your credit cards altogether,' says Privacy Matters.
Disadvantage #2: Like most loans, debt consolidators require collateral
The catch is that many debt consolidation loans are considered 'unsecured loans,' meaning that you can't negotiate a lower rate if you don't offer solid collateral in return. And even if you do have reasonable collateral to offer, it can be seized and taken from you if you can't otherwise pay back the amount you owe.
Do you know why Gail doesn't spend R10 000 a month on bookkeeping fees?
Gail is a GP who's just opened her own private practice. Because she's trying to save money on admin costs, she is doing her books herself. She thinks: 'How hard can it be?' The answer: 'It's very hard unless you've got the right tools at your fingertips!' Well, I found just such a tool. It has everything from checklists about how to prepare for an audit, to detailed explanations about financial statements.
Do these disadvantages mean you shouldn't consider debt consolidation?
Paul Slot, the president of the Debt Counsellors Association of South Africa, explains in an iol article that you need to first ensure that that debt consolidation:
The bottom line: Don't just jump into debt consolidation. Make sure you consider everything – including the disadvantages . Lookout for our next article on the pros on debt consolidation.