Dangers of National Debt Consolidation on an Individual

For Ayanda who is paying off more than three credit providers every month, debt consolidation is becoming an attractive prospect. Rather than having to pay her Edgars and Woolworths account, along with her Virgin credit card, her car loan and home loan for her townhouse separately, by using this debt management tool she could ease her stress levels. She will approach a debt consolidation company and apply. She has to do all of this of course, once she is fully aware of the pros and cons. For example, high upfront fees are charged and she must prepare for this. Even though consumers may know about how to benefit from debt consolidation, very few are well-versed about the dangers of debt consolidation.

Prior to arranging anything, Ayanda has to know her affordability status, so a thorough and transparent assessment of finances is a necessity. Without the right knowledge she may not realise that it can be quite costly. There are initiation costs involved. To become a beneficiary of debt consolidation, financial discipline becomes a big part of her quest to live a debt-free life. If she keeps using the surplus funds she has, this ultimately works against all her efforts. She also needs to make sure that she researches financial institutions. To avoid the danger of being swindled out of money she needs to check their registration and accreditation status. There is a wide array of unscrupulous financial institutions that make promises and never deliver. Consumers can avoid these by simply being prudent about research. A major risk for her would be the loss of her home if she defaults on her home equity loan.

Debt consolidation is often mistakenly regarded as an easy way out of debt. It should rather be considered to be a convenient manner of monitoring debt that is becoming challenging to handle. It does not reduce the debt owed. This is one of the many dangers of debt consolidation. Debt consolidation works only once the applicant has a clear strategy for how they will repay the new loan amount. Lower interest rates aren’t guaranteed, so the plan should be able to withstand such possibilities. It also works well once individuals are prepared for the entire process as well as the responsibilities.