Tstati writes: I am looking for a consolidation loan to consolidate my debt. There are several companies that I came across with this product, but I’m not sure how credible most of them are.
Debt consolidation is not necessarily a solution to a debt problem. Reports from debt counsellors show that in around 80% of the cases where an individual has consolidated all their debts into one loan, they do not adjust their lifestyle or living expenses and end up re-opening the credit lines that they closed with the consolidation loan. This just leads to further indebtedness and ultimately legal action or debt review.
Be very aware of this risk when you decide to consolidate and make sure you are making the adjustments to your budget so that you do not access further credit. In terms of credit providers, the major banks offer consolidation loans. If they turn you down due to your credit record, then smaller credit providers who have greater risk tolerance will offer a loan but at a much higher rate and with higher fees. If you do not qualify for a bank loan then you may find the other offerings too expensive to be worthwhile.
Also be very careful of loan scams that are around at the moment where consolidation loans are offered but you are required to pay legal fees or consolidation fees upfront. No credit provider will ever ask for upfront payment.
This article first appeared in City Press.