Consolidation: Is it ever a good idea?

HeadAbove_2

As the title suggests, my partner and I are considering taking out a loan to consolidate all existing debt.

Relatively speaking we only owe a small amount, around £10,000, through credit cards, overdrafts and an unsecured loan. Until recently, all monthly repayments have been manageable and in fact we had been making overpayments to reduce the amount owed.

Unfortunately, redundancy and subsequent employment at a lower salary had meant that payments have reduced, and although we've made some HUGE savings through the tips and tricks around MSE we're still a bit hard up.

Whilst the loan will leave us with broadly the same debt overall, at least it will have some structure to it and will actually reduce our monthly outgoings by circa £200, meaning our "rainy day" fund can get back to somewhere near useful without being chipped away at.

We have had mixed reports as to whether this would be a sensible way to go but to my mind it makes perfect sense. Credit cards have already been cut up and we have no intention of using these again, similarly if we do go ahead the overdrafts will be removed.

What would be the opinion from here please? Any comments would be greatfully received.

anna_d_2

If you are determined then yes, it is a good idea. I've just done it.
I admit I'm really scared not having a credit safety net but cancelling accounts takes this temptation away.

You have to be 100% determined though!

HeadAbove_2

Hi, and thanks for your reply.

We are perfectly determined; everything was a manageable debt before the redundancy and we were living well within our means on a monthly basis and it is just unfortunate that our means are now considerably less.

Some people have told us that consolidating is a bad idea but I can only see that being applicable if the further steps are not taken so as not to overspend again!

FireWyrm

The best laid plans of mice and men....

However, my experience of this is that it takes some kind of willpower to stick to the plan. You could just end up with £20K of debt. It can work, but you need to address the issues that landed you in debt in the first place and ensure that unhealthy spending behaviour is well and truly in the past, or it won't work.

camuk81

Head Above,

I can understand why. There is a figure banded on here saying 85% of consolidation fail. As long as you are committed and keep to your new budget then you should do great.

Don't be a stranger on the boards

electrobix99

I have done it twice and failed twice. Third time the charm for me? I did not want to risk ending up in more debt so took measures to lower my outgoings and clear things off one at a time.

Could you shift some debt around to make it cheaper using 0% cards and then focus on repaying the expensive debt off first.

If you do consolidate make sure you remove the overdraft facility and close the credit cards (or just keep one for a back up). It is so easy to start spending on them again, especially when you have some more free money from reducing monthly payments and think "i will pay off that next month".

HeadAbove_2

FireWyrm wrote: »

The best laid plans of mice and men....

However, my experience of this is that it takes some kind of willpower to stick to the plan. You could just end up with £20K of debt. It can work, but you need to address the issues that landed you in debt in the first place and ensure that unhealthy spending behaviour is well and truly in the past, or it won't work.

Indeed; as has been said previously though, we have altered our spending patterns accordingly and this is merely an attempt to start afresh.

I think if the last few months have taught us anything it's that what seems a perfectly manageable debt situation can spiral through no fault of your own; don't want to be heading back that way anytime soon.

claireabelle_2

I think as long as you've had your proper lightbulb moment, it's a good idea. Backing you to be in the 15% that manage it!!

blacksta

consolidations are only worth it if you are going to be paying less interest over the term of the loan but be swayed by lower monthly payments.

cottonhead

If you stick to it and dont get tempted into increasing the loan or getting more credit until its paid then yes its probably a good idea. It feels great to have 1 debt to deal with rather than lots of them and for me that was quite motivating in itself. If it leaves you better off each month that going to take the pressure off too so providing you can stick with it then I would say go ahead.

National_Debtline

Hi there HeadAbove

A couple of things to bear in mind:

- Your monthly repayments will be lower, and this is often the most attractive aspect of consolidation. However it is worth bearing in mind that the total you repay over the term of the consolidation loan could be (significantly) greater than the existing total balances. If trying to maintain a reasonable credit rating is a priority for you, you may consider this a price worth paying.

- You do not indicate whether rent or own your home. Lenders are more likely to offer consolidation to homeowners (especially those with equity), but will often only offer the loan on a secured basis - effectively an extension of the mortgage. As the small print says, your home may be at risk if you do keep up repayments on a loan secured against it!

We wish you well with whatever choices you make.

NDL