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Advantages and Disadvantages
By Staff Reporters
The main advantage of debt consolidation is that it allows a doctor to make one payment instead of many, and this helps avoid late fees for missed payments. The doctor may save time by having to make only one payment per month instead of many.
Other Advantages
Another advantage is that debt consolidation promotes self-discipline by transferring credit card debt (and other lines of credit) that does not require mandatory principal payments into a fixed-term loan – with mandatory payments that include both principal and interest. This is a useful tool for doctors who may find it difficult to make more than the minimum payments on their loans because they spend too much. It should be obvious that budgeting should go hand-in-hand with this process, because if the doctor continues to spend at the former level, yet now has a mandatory payment, the result can be financially devastating.
A final advantage to debt consolidation is it may result in a lower overall interest rate. This is, of course, conditional on the lender providing the consolidation.
Disadvantages
One disadvantage of debt consolidation is that it can lock a doctor into mandatory payments. Depending on the situation, this can be either a blessing or a curse. It becomes a curse when the fixed payments are so high that he/she can no longer make the full debt payments each month. Depending on the lender, and the terms of the consolidation loan, this could result in the loan being called. The effects of this are obviously detrimental to the doctor.
Other Disadvantages
A second disadvantage is that the doctor loses flexibility when he or she takes on a fixed payment that is larger than the combination of all smaller minimum payments. The fixed-payment schedule becomes detrimental when h/she has an unexpected reduction in income. The doctor without a fixed-payment schedule can increase payments to many small individual loans, and if income reduction occurs, drop the payments back down to the lower level. Then; when normal levels of income return, the higher payments can be resumed.
Assessment
Making larger payments requires discipline; because a lack of same was likely causative of the debt in the first place.
Conclusion
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Filed under: Financial Planning, Funding Basics, Investing, Risk Management | Tagged: cash management, certified financial planner, certified medical planner, CFP, CMP, david marcinko, debt consolidation, doctors, financial planners, Financial Planning, hope hetico, loans, medical payments, physician debtors, physician investors, physicians | 2 Comments »
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