50K on credit cards and drowning

CliveOfIndia

Stateofart said:

Unlike others, I do like a consolidation loan IF you are strict with yourself.  A consolidation loan can really help mentally I find but you do need to ensure you don't start spending again.

There are some situations where a consolidation loan can help.  The absolute key thing is, as you have highlighted, you MUST stop spending on the credit cards again as soon as you've cleared them.  Sadly, for a great many people, the temptation is far too great.  Either that, or they are genuinely living beyond their means, and rely on credit cards to pay for essentials like food and heating.  In that situation, a consolidation loan is a surefire way to financial ruin.

The other problem is that often it's hard to get a consolidation loan at anything approaching a sensible rate of interest.  Simply because a lender cannot guarantee you really will use the loan to pay off your cards, and they cannot force you to do so.  So when they run their affordability calculations, they have to assume that the loan will be in addition to, not instead of, your existing debt, and will set the interest rate accordingly.

No-one is saying that consolidation can never work - just that, in far too many cases, it simply makes matters worse.

EssexHebridean

Generally speaking, if it is the first time someone has found themselves in debt, "going through the process" will stand them in far better stead than consolidation - whether or not that consolidation works. 

kimwp

EssexHebridean said:

Generally speaking, if it is the first time someone has found themselves in debt, "going through the process" will stand them in far better stead than consolidation - whether or not that consolidation works. 

While I agree wholeheartedly with your sentiment; with a pedant's hat one, someone who's got into debt again may not have learned to manage their money the first time round (unless the debt was due to misfortune obviously)

I think we are in alignment though that (by itself) consolidation is generally not the solution!

EssexHebridean

kimwp said:

EssexHebridean said:

Generally speaking, if it is the first time someone has found themselves in debt, "going through the process" will stand them in far better stead than consolidation - whether or not that consolidation works. 

While I agree wholeheartedly with your sentiment; with a pedant's hat one, someone who's got into debt again may not have learned to manage their money the first time round (unless the debt was due to misfortune obviously)

I think we are in alignment though that (by itself) consolidation is generally not the solution!

Yes - that's my point - if the first time someone has found themselves in debt, and they are seduced by the promises of "one affordable monthly payment" this means they are highly unlikely to have actually got to grips with budgeting every last penny - because they haven't needed to. Someone who chooses instead to simply pay off the debt as it stands as quickly as they can, through making savings, transferring debt to interest free where possible and just generally knuckling down and going without until it's all cleared is far more likely to remember that the process wasn't really much fun and to not want to do it all again, IMO. This is what I mean by "going through the process" teaching people lots of valuable life-lessons - lessons that they will never get from consolidation whether it works for them (unlikely) or not. 

But yes - definitely in alignment!