Advantages and Disadvantages of Debt Consolidation


Many South Africans believe debt consolidation can provide them with debt relief. But, can it really? After all, it just means taking out one big loan to settle a few smaller loans. More often than not, the disadvantages outweigh the advantages. See for yourself!


Single monthly payment

Only having to make one payment that covers all of your debts each month is very convenient.

High fees and interest rates

Borrowers with excellent credit scores may be offered better rates. But, otherwise expect high upfront fees. Plus, interest rates can increase unexpectedly.

Spend less on debt monthly

The consolidated instalment may cost you less on a monthly basis than paying off your debts separately. However, this is not a given.

Expensive in the long run

Takes 10 to 20 years to repay a debt consolidation loan. All the while, interest is piling up – so you end up spending a lot more on debt.


Illusion of debt being paid off

Having just one loan to pay off creates the illusion that you have less debt to pay off. You still owe the same amount of debt, it’s just all in one place. You may be tempted to use credit cards again after they’ve been paid off.


Does not provide debt relief

Debt consolidation does not reduce the amount of debt you owe. Smaller short-term debts are paid off with one large long-term debt. This only has the effect of combining your debts, not reducing them. Thus, over-indebted consumers cannot benefit from debt consolidation.


If you are struggling with your debt repayments, instead consider debt counselling – a proven debt solution that provides you with immediate financial relief and a structured long-term plan. To find out more, send us your contact details for a free call back.

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