The Pitfalls of Consolidation Loans

We all want a quick fix when our debt has left us at a point where we can no longer manage our debt repayments and living expenses. A Consolidation loan is often advertised as an solution to your financial problems, an easy way to consolidate your debt into a single reduced payment.

The reality of this type of loan can be far from the true picture painted.

This article will delve into the hidden pitfalls of consolidation loans and compare them to the more sustainable option of debt review. By understanding the key differences and potential consequences, you can make an informed decision about the best path to financial recovery.

Let’s compare these two options.

Why is it a risk to take out a Consolidation Loan?

A consolidation loan only covers unsecured debts. This includes personal loans, credit cards and your store accounts. These are considered to be high risk loans, due to the nature of the debt.

High Interest Rates: The biggest issue with consolidation loans is the high-interest rates and administration fees that come with this type of loan. While the idea of simplifying your debt into one affordable payment is true, the interest rate can sometimes be much higher than your original debt amount. Unfortunately this means that you will end up paying much more, which can worsen your financial situation rather than providing you with much needed relief.
Good Credit a Requirement: A Consolidation loan is not really as accessible as you might think. In order to qualify for a reasonable interest rate, you need a good credit score. If your credit score is low due to existing debt, you might only qualify for a loan with sky-high interest rates, up to 36%. Or your loan application can be denied altogether. This really creates a difficult situation where consumers who really need help the most, can’t access this type of loan.
Falling Deeper into Debt: A consolidation loan will not address the underlying issues of what got you into debt in the first place. Without a solid financial plan, like debt review, there is a risk that you will continue to accumulate more debt in the future. Instead of solving your financial problems and giving you the opportunity to become and remain debt free, a consolidation loan can become another financial hurdle.
No Legal Protection: Unlike debt review, a consolidation loan does not offer any legal protection from your creditors. If you default on your loan payment, they can take legal action against you, which can include repossession of your assets.

Debt Review: The Path to Financial Recovery

Debt Review offers clients a legally protected and structured path to financial stability.

Here is why Debt Review is the safer option:

Full Assessment of your Financial Situation: Debt Review begins with a full comprehensive free assessment of your current financial situation. A registered debt counsellor will analyse your income, your expenses and your total debt.
Personalised repayment Plan: Once your assessment is completed the debt counsellor will create a debt repayment plan that takes your affordability into account. The aim is to reduce your monthly payments to a level that you can manage.
Creditors Negotiation: Your debt counsellor will negotiate on your behalf with your creditors for a possible lower interest rate and extended repayment terms. Your debt will be restructured in such a way that it will be affordable to fit your unique budget.
Legal Protection from Creditors: During debt review you will receive full legal protection from all your creditors. They are not allowed to take any further legal action against you or seize your assets like your home or vehicle.
A single monthly repayment: With your newly approved repayment plan, you will make a single monthly payment. Your payment will go to a Payment Distribution Agency (PDA) which will then distribute your funds to the various creditors according to the agreed upon plan.
Support: During your debt review process your debt counsellor will provide you support to ensure you stay on track. They will also assist you if your financial situation changes.
Final Step: After you have successfully paid all your debts, you will receive a clearance certificate. The credit bureaus will be informed and you will be able to rebuild your credit score and financial standing.

Making an Informed Decision

Debt review and consolidation loans are two very different processes to managing debt.

A consolidation loan might look like an easy solution, but the high interest rates, requirements for good credit, and risk of falling into greater debt can worsen your current financial situation. Debt review, on the other hand, provides a safe, structured, and legally protected plan for your full financial recovery.

If you’re ready to take control of your finances and work towards a debt-free future, visit Debt Rescue today! We offer the support and guidance you need to make a lasting change. Don’t let the allure of a quick fix pull you deeper into debt.

How can we help you?

Are you struggling with debt while earning an income? If so, let our expert debt counsellors provide a no-obligation, cost-free assessment to consolidate and reduce your monthly repayments for immediate financial relief.