Why are consolidation loans bad? Debt detailed inside

gizmo111

So you'd have 7K left on cards and around £400 per month to pay them and reduce the debt which would take about 18 months if no further 0% offers come your way.  At which point the loan would have 30 months left, you would overpay the loan by the extra £400 and clear that roughly around 18 months , saving a load of interest on that as well- completely debt free in around 3 years and saved a fair bit of interest.  If you can get it and move it around to your advantage to clear the debts quicker then I would go for it.

DCFC79

If your prepared to not create any new debt, no more card spending and only spend what you can afford once overpaying the cards has been done then yes maybe it is a viable option.

Are you prepared to make cuts elsewhere IF you need to ?

Emmia

Would you (honestly) close all your credit card (etc.) accounts, once their balances were paid off with the loan? If you wouldn't/ don't have the discipline to be sure you will, then all that will happen is that you'll run up more debt on the cards as well as having the loan to pay off - almost guaranteeing to double your debt.

I consolidated using a loan once (on a pretty small amount) and closed the credit cards as soon as they were zeroed to avoid any temptation.

The loan payments over 12 months were ok with my income and budget - and I've never gone back to this cycle of month to month indebtedness again.

I now have a credit card (with a limit that is fairly low), which is paid off in full each month - I could have a much higher limit, but reject the offered increases as I don't need or want them.

If I have it, I might get tempted - and I find it easier just to decline the increases rather than having a high credit limit sat there.

w66m

Read the post and the comments and find it interesting that debt consolidation is so hated on here. If you can be disciplined with it lowering your cost of debt can be so helpful and make a big difference to the date you get debt free. If not managed properly it can of course just get you further into debt but it seems like you have done a lot of work to understand that debt already and maybe are ready to get on the path to debt free - if so consolidation could be great.
You mention, however, that you have just finished paying off a P2P loan - was that related to you credit card debts at all? Or has paying off that debt brought your overall debt level down?

DCFC79

w66m said:

Read the post and the comments and find it interesting that debt consolidation is so hated on here. If you can be disciplined with it lowering your cost of debt can be so helpful and make a big difference to the date you get debt free. If not managed properly it can of course just get you further into debt but it seems like you have done a lot of work to understand that debt already and maybe are ready to get on the path to debt free - if so consolidation could be great.
You mention, however, that you have just finished paying off a P2P loan - was that related to you credit card debts at all? Or has paying off that debt brought your overall debt level down?

Thread is 2 months old.

[Deleted User]

w66m said:

Read the post and the comments and find it interesting that debt consolidation is so hated on here. If you can be disciplined with it lowering your cost of debt can be so helpful and make a big difference to the date you get debt free. If not managed properly it can of course just get you further into debt but it seems like you have done a lot of work to understand that debt already and maybe are ready to get on the path to debt free - if so consolidation could be great.
You mention, however, that you have just finished paying off a P2P loan - was that related to you credit card debts at all? Or has paying off that debt brought your overall debt level down?

If you want a proper answer - because consolidation doesn't address the underlying cause. Putting aside the chance the bank won't lend it, let's assume they do. The person now has a loan of £25,000 and £25,000 of separate debt. There is a very good chance that because of the debt situation there are plenty of other problems going on e.g. stuff being put off such as a leaky roof, dog needs an expensive treatment, boiler is flaky, car is on the last legs. The person pays of the £25,000 first debt, now there are 2 scenarios

1) The "Ocean Finance" - they suddenly have £500 a month going out instead of £1000 - whoopee, lots of cash, but instead of saving - they waste it, book a holiday, get the daughter her new iphone, order a new TV blah blah and all their money is gone again, no emergency fund and the car breaks down and they're back borrowing again

2) The "run it up again". Their cards are clear but hang on, the cat needs treatment, son wants a bike, it's Christmas coming up, house is looking shabby, they spend on the cards and all of a sudden they have £25,000 loan and £25,000 on the cards and they now need a £50,000 consolidation

Very very VERY few people are in a position where they can take the consolidation loan, pay off the debts and then cut the cards up and fix on paying off the loan and nothing else. Life gets in the way. Consolidation seems great, but it's not the way forwards as it doesn't address the reasons why the person has the debt problems in the first place - nothing is going to change between the day before the loan and the day after