Are consolidation loans all nonsense?

StMilMo

Quick question - based on some initial investigations and phone calls it seems that every "debt consolidation" loan comes with a MUCH higher APR than even the worst cards/loans rate. The most recent place was very reluctant to mention an APR, but I pressed the point, and he mumbled "sixtyorseventypercent" before continuing the ramble about wanting to help me and understand my circumstances.

I have some debt at 15-20% which I can afford to service for the time being but IF loans existed for this purpose at lower rates I would of course look into it. Is it a wild goose chase, though?

sourcrates

Hi,

Loans have always existed for this purpose, however because of the nature of the product, and recent global events, lenders are being much more careful who they lend too, and why.

If you look at the the time lines for most people who are in debt, you will see very familiar patterns emergeing, years of historic debt, opted for every zero % offer going, offers dry up, first consolodation, ran up the debts again, further consolodation, ran up the debts again etc etc eventually opting for debt help, which they perhaps should have done before consolodation was even concidered.

Time and again we see this pattern in the people who come to this forum for debt help.

When you consolodate those card accounts, its so easy just to start using them again, and before you know it, the debt is back but at twice the level.

It used to be low interest consolodation loans, could be found with most lenders, but they now see the application for loans of this type, to be a warning sign that you cannot afford your current indebtedness, and with the amount of folk losing their jobs or who are about to, its been a drawbridge up attitude all round to this product, those who do offer them, do so at massive rates of interest, and you`ll be doing yourself no favours there.

fatbelly

The idea of consolidation is not all nonsense but it's mostly nonsense.

Moving to a lower apr could actually be more expensive if it's spread over a longer period.

Often the only way to get a lower apr is by a secured loan - that is moving your debt to a more dangerous place.in that your house is now at risk

If you are a homeowner who needs emergency help there is such a thing as an smi loan but it will not cover consolidated lending.

But the biggest reason why this does not work in practice is that it doesn't address how the debt occurred in the first place and often cleared credit cards just mean that they get run up again and you then have credit card debt and loan debt.

If you can service your debt at 15% it's probably best to do that but look for cards with 0% deals to try to shift your debt to. If you post a statement of affairs we can take a closer look

lordmountararat

Consolidation loans can work if you're really disciplined in managing your money. Sadly many people who need consolidation loans aren't disciplined, and the debt cycle starts anew.

greensalad

I got a consolidation loan at 6.9% and it really helped me get out of a hole. At that point I had been extremely disciplined, was a budgeting zealot and had not touched credit in 18 months. They do work, but they are too often taken up by financially vulnerable people. 

StMilMo

Thanks for the replies, guys. Wow, 6.9%, when and where was that? I can see that what sourcrates says is likely true, not very good offers around at the moment.
My financial circumstances are unusual in that I have a huge amount (50k, lol) of unsecured high-rate debt but a lot of other assets I could use to pay it all off. But, they perform better in an average year than the debt's interest rate, so by a calculated decision I don't want to do that just yet. If I could find a consolidation loan I'd gladly close the cards etc with that.

Fatbelly - no chance of me getting new 0% cards, I'm pretty sure. Always comes back with a No and I'm not surprised

Karonher

I got a consolidation one years ago and it was the best thing I did. You will have to be disciplined and not use your cards as much.

greensalad

StMilMo said:

Thanks for the replies, guys. Wow, 6.9%, when and where was that? I can see that what sourcrates says is likely true, not very good offers around at the moment.
My financial circumstances are unusual in that I have a huge amount (50k, lol) of unsecured high-rate debt but a lot of other assets I could use to pay it all off. But, they perform better in an average year than the debt's interest rate, so by a calculated decision I don't want to do that just yet. If I could find a consolidation loan I'd gladly close the cards etc with that.

Fatbelly - no chance of me getting new 0% cards, I'm pretty sure. Always comes back with a No and I'm not surprised

It was with a company called Neyber. They are a workplace-based loan scheme. Essentially, they give you a very low rate because they deduct the monthly payment via your paycheque, which of course heavily increases the likelihood of getting full repayment each month. They offer three different APRs, 4.9%, 6.9% and 8.9% depending on whether you are deemed "excellent", "good" or "fair". I ended up with the middle rate and was able to consolidate £10,000 of credit card debt. That left me with only the 6.9% as interest-costing debt. I repaid the Neyber loan 3 months early in Spring this year. Now my DFD is rapidly approaching!

sourcrates

Just to make the point, consolodation of existing debt is not the way forward in most cases, you must address the reasons you got into debt in the first place, otherwise you will end up in all kinds of trouble.

Debt solutions exist for just this reason, think very carefully before you do anything rash.

ryanm8655

sourcrates said:

Just to make the point, consolodation of existing debt is not the way forward in most cases, you must address the reasons you got into debt in the first place, otherwise you will end up in all kinds of trouble.

Debt solutions exist for just this reason, think very carefully before you do anything rash.

Exactly..,

I was on this forum back in 2016 asking about consolidating. I had already done it once foolishly at a crap rate. Then came here looking to do it again. This time I reduced the debt and interest rate but I hadn’t addressed the issues that got me there in the first place. My last post in 2016 makes horrific but highly amusing reading in hindsight... I ended up getting tonnes of interest free credit on 40 month deals and foolishly living like a king on them. Some I used to clear the loan but ultimately I ended up back in 2019 with about 3 times the £10k I had from the 2016 loan. Embarrassing but a learning experience.

Considered a loan again in 2019 just to reduce my interest payments but ultimately glad I didn’t. I’ve now made the mindset changes that consolidating allowed me to avoid...plus I also found I was able to shift a lot of debt to 0% pretty quickly as soon as I started hitting the debt hard. All of my debt was 0% within 6 months, so it ultimately didn’t make sense to consolidate numbers wise either...

TheAble

StMilMo said:

My financial circumstances are unusual in that I have a huge amount (50k, lol) of unsecured high-rate debt but a lot of other assets I could use to pay it all off. But, they perform better in an average year than the debt's interest rate, so by a calculated decision I don't want to do that just yet. If I could find a consolidation loan I'd gladly close the cards etc with that.

Sounds a little improbable. Investments that on average return better than 15-20% a year? If you had debt at 0% or very low digits I could maybe understand, although you'd be running a high risk even then. But to have double digit debt funding investments is nuts.