What's wrong with consolidating?

Steve_In_London

Hi all, found out yesterday I'm just over 20,000 in debt. 10k on a 5 year loan, rest on cards, overdrafts and dregs of past loans. For some reason it was the total starting with a '2' that really slapped me in the face and made me acknowledge my situation at long last.

Have been falling further behind by refusing to face reality (thought I was nearer 15k down), and have been spending a small fortune down the pub each month along with lots of shiny goodies I really don't need.

Struggling to meet monthly outgoings as things stand, but think I'd be able to get a 5.8% loan with an existing creditor to pay off about 8k of the "other" debts over 6 or 7 years. I could certainly manage fine on an ongoing basis with that (assuming budgeting instead of treating cash machines as special free money dispensers).

I'll post an SOA at some point, but just wondered why the general consensus seems to be so against consolidation? Thanks in advance for any advice.

D&DD

Hi Steve welcome to MSE I think a lot of us have fallen into the consolidation trap before then run up more debts on the cards again thats why for a lot of us its just not an option..
Also by snowballing your debts you actually pay them off quicker and save a ton of interest too

serena

Hi Steve,

generally, the experience of people who have posted here about their debts has shown that when they have consolidated several debts, say for credit cards, they have not changed their spending habits or closed the cards but have continued to spend. The extra money that has been freed up has not gone towards clearing debt, but has also been spent.

Bit further down the line, light bulb moment, and they finally face the fact that they are really in big trouble.

Think about it all very, very carefully.

little_miss_broke_2

Hi Steve,

Welcome, you've come to the right place

Your full SoA would be helpful as soon as you can do it. Would give everyone a much clearer idea of your situation.

Just speaking from my own personal experience, consolodation was the worst thing i ever did. Probably because i've done it 3 or 4 times over the last few years and i have always, without exception, gone back to my old ways of spending and ended up running the debts back up again, always bigger than before too.

I think (and like i say, this is only my opinion) consolodating is just "too easy", it doesn't get to the root of the problem (why we can't manage our money properly, better) and i think it's puts people in a false sense of security... "Oh super i've paid it all off now, aren't i good? I deserve a treat now, oh yes, a holiday, hmmm, got no money. Oh sod it, i'll put it on the credit card, after all it's empty now"........and before you know it you're back to square one.

Without sounding patronising (and i hope i don't) i think we *need* to suffer a little bit, we need to go without, budget, work at it, work hard to pay our debts off, without the ease of consolodation. Personally i beleive it's the only way that i am ever going to learn how to manage my money better.

I hope my post has helped and i haven't waffled on for too long!!

Best of luck to you, whatever you decide to do

D&DD

http://www.whatsthecost.com/snowball.aspx
Heres the link for the snowball calculator when you get a chance compare it with how much you will pay on the new consolidation loan HTH

ely

You've joined the right place to get support and advice.....Good luck !!!!!!!!!!

Steve_In_London

Thanks for the quick replies!

You'll not be amazed to hear that the 10k loan was for consolidation, but somehow never made it from my bank account to the debts...

I can certainly see that "having money again" can make you keep spending, it's happened to me enough times.

I have had the lightbulb moment though!!!

Bit more thought required I reckon, budget, SOA etc.

Thanks again for the welcome and the advice.

little_miss_broke_2

Steve_In_London wrote:

You'll not be amazed to hear that the 10k loan was for consolidation, but somehow never made it from my bank account to the debts...

Yeah, been there done that too You're not the first and i'm sure you won't be the last.

You've come to the right place.

I only found this web-site myself on sunday and already i feel like my life has changed. Bizarre really, i haven't paid a penny off my debts yet, yet i feel in *control* of them now, as opposed to them controlling me.

Steve_In_London

Oh dear oh dear, that Budget spreadsheet is a scary thing.

You never really think that a £300 holiday is £25 a month, or a fiver a day for lunch adds up to £1,000 a year... Well I didn't anyway! £690 a month overspend - can't quite believe it. I've only guessed at some things like food, but it's not good whatever the finer points (and yes I will start adding up everything from now on!).

This is going to require some thought and application, isn't it?! I was actually half pleased when I realised just how far in debt I'd got yesterday, because it meant acknowledging it for the very first time. Which I hope is the first step to doing something about it.

Cheers for the snowball link D&DD. Little Miss Broke, I hope you don't mind me cribbing your signature!!

kingkano

I think it really depends on your situation, but as everybody has pointed out - even with a lightbulb moment - sometimes consolidation can make you think everything is 'ok' again because you just have 1 or 2 big debts and lots of empty tempting credit cards again.

It really CAN work though if you change your lifestyle and recognise what caused the problem etc. We had 2 credit card debts and a loan last year and I didnt know about card tarting then, so we consolidated into 1 loan. BUT we had a wedding to work towards this year, so that has made us examine every penny we spend on anything. The consolidated loan meant we had money to save towards the wedding. ANd I am proud to say from 14k wedding we will only have the honeymoon spending allocation (around 1k) hanging over at the end of it. we have saved the rest ourselves!! and we havent built up ANY extra debt thank goodness!

SO it CAN work but it invariably doesnt....

Well done on your first step and stick around and everyone here will see you right

mjh1977

Just to echo Kingkano's point: I've also had a couple of consolidation loans which I'd handled quite badly. Thinking back, both were times of change: having to find places to rent, massive estate agent fees, time spent without a working kitchen leading to meals out, etc. and it was wrong to take them out at the time.

However, once I'd stabilised at the end of last year, my bank offered me a consolidation loan at 6.9%. Whereas I was paying £330 [B]minimum repayments, I now pay £250 and this includes all the interest. The difference is £80, which I'm saving in order to pay off the whole thing early.

The bank insisted I show proof I'd closed all other sources of credit, and I can't take out any more credit for a year. It wasn't easy to get the loan, and I had to put up a fairly robust case, but it worked. Don't take the first 'no' as an answer.

But now I have control over the loans, I don't want to repeat my earlier mistakes - I'm obsessed if I even look like slipping into overdraft and have cut my spending right back because it's not a hopeless case and I can see results.

So in my view, if the numbers work consolidation can be OK. But as others have said, you need to know how you're going to use the money - and make sure you stick to the plan.

M