Why are consolidation loans bad? Debt detailed inside

loansome

I'm just looking advice/guidance regarding consolidation loans,  having read on the forums that alot of the time they're not considered advisable, i'm just wondering why?
I have quiet a bit of debt that, basically nearly £27k across 7 cards.  Unfortunately due to poor credit rating and credit utilisation across the cards i have 2 balance transfer offers, One i've taken on card 5 and another available on card 2 which i can't take advantage of due to balance on it.
Below table is current state of affairs of my debt

I've recently paid of a loan with a p2p provider, and they have offered me the chance to get another loan
£19,000 @16% over 4 years = £25,597.27 - £533.28 a month
Now while this is high interest rate, i've been trying to do the sums on my current payments + interest occurred. 
If i take the 19k loan and pay off my highest interest rate cards i'll be left with £7935.79, which i could transfer to card 2 which has a 0% offer, i just can't use due to existing balance on the card.
Would it not make sense for me to take the loan, i'd almost half my total payments, and could use the reminder to work down the balance which would be left on 2 cards at 0%?
Any advice welcome

[Deleted User]

They;re not recommended because 1) you tend to pay a lot more for them than your existing debt, due to high rates and longer term and b) many who take them out just use it as extra spending money and never consolidate anything - or if they do, they run up the previous debt again. 

As a rule, when someone has too much debt the last thing they need is more debt.  It's like handing a drowning man a refreshing glass of water.

Go to the DFW boards and do a full SoA.  You'll get a more rounded view of your options. 

sourcrates

The main problem with consolodation loans, is that the debtor, fails to change there bad financial behaviour, and continues to use the consolodated lines of credit, (we see it all the time on these forums).

Almost everyone who consolodates tends to do this, or a very high percentage at least, so a few months down the line, you end up with double the debt, and deeper in trouble.

Only if you change your behaviour, can these loans work for you, however the interest rate tends to be higher, and the repayment period longer, also banks are reluctant to offer this product at present, due to the risk involved.

In essence, you cannot borrow your way out of debt, its always best to opt for a debt solution, such as debt management, IVA.DRO etc.

Ask most people who are, or have been in debt, and you`ll find they have consolodated more than once previously.

It is generally recomended to avoid such products.

loansome

Thanks for the replies guys, i can see your points regarding the behaviour of the debtor (me) being a cause of concern. I suppose i see the new loan as being a replacement for my existing debt and not adding to it, if i take it and pay off 19k worth of debt immediately. Although the interest rate on the loan is high, it's still lower than the credit card debt, in some cases almost half! 
The trouble i have is i spent all of 2020 paying the interest only on my credit cards due to my 0% offers expiring and not being offered any new transfers, i'm thinking this is due to my credit utilisation on the cards plus the pandemic!.

The issue for me at the moment is, even if i were to get a 0% balance transfer offer from an existing card i wouldn't have any wiggle room amongst the cards to transfer money. Previously i had close to £40K of debt which i was able to chip away it using balance transfers, due to not receiving any in 2020 it slowed my debt pay off big style and i don't want 2021 to be a repeat!

sourcrates

Sometimes you just have to bite the bullet and take debt advice, the 0% deals always run out, and you may find that loan will be declined also. lenders are being super tight just now, due to the current situation we all find ourselves in, nothing is a gimme.

[Deleted User]

If you were disciplined you could do it but it does mean that - you pay off your debts, close the cards and hammer the loan payments, overpaying if you can. A bank loan, where the bank pays the cards off (I don't know if they do this anymore) rather than gives you the cash, could be similar. An alternative thought if you did get the loan would be to pay off any cards that had BT offers, then transfer any card debts you can to those, pay the minimum + what you can afford on top of the loan repayment to try and clear them down. The Debt-Free pages are where you need to head though to try and change the reason why you are where you are.

lordmountararat

Debt consolidation does work for some people, but you have to be really disciplined and honest with yourself as to why you got in debt in the first place.

loansome

Deleted_User said:

If you were disciplined you could do it but it does mean that - you pay off your debts, close the cards and hammer the loan payments, overpaying if you can. A bank loan, where the bank pays the cards off (I don't know if they do this anymore) rather than gives you the cash, could be similar. An alternative thought if you did get the loan would be to pay off any cards that had BT offers, then transfer any card debts you can to those, pay the minimum + what you can afford on top of the loan repayment to try and clear them down. The Debt-Free pages are where you need to head though to try and change the reason why you are where you are.

Yeah that's what i was thinking, pay the big hitters with the loan, then transfer the remaining balance to the 0% offers.!

I've tried to work it out that i would still be paying out the same amount each month in payments, but at least this would be killing the debt and not just covering interest, which is all i've been able to do in 2020.

loansome

lordmountararat said:

Debt consolidation does work for some people, but you have to be really disciplined and honest with yourself as to why you got in debt in the first place.

Yeah my debt levels were alot higher several years ago and i've managed to get down to the level i'm at now, haven't used a credit card in a couple of years bar using them for balance transfers to clear debt. It was just with 2020 being a tough year and 0% offers drying up, it's forced me to look at other ways to drive the debt down

tacpot12

A consolidation loan might be right answer for you if you are certain you will not apply for credit again.

Have you changed your spending habits and started budgeting and saving so that you are saving for all annual and all unforeseen costs? If not, you will did yourself bigger hole if you have a consolidation loan and then take out further credit to pay the car insurance/tax/ or cope with a boiler failing, a washing machine that needs replacing, or when you car fails the MOT. You have to have be budgeting and saving well to take the risk on a consolidation loan.

Sncjw

Remmever they will assess your afforibkity of 19k on top of 27k. So assessing you with debt of 46k and how you would afford to pay that. You would have be in a rally high paying job to afford that. If your earning say 24k I would say no way you would get that. Also the rate you were offered you probably not get. It could be higher even if you were successful.