Looking back, some of the worst decisions that I made were to consolidate my debts when they started to spiral out of control. I did that quite a few times before everything fell apart and I was forced to get rid of my debts once and for all. On the face of it, it’s a sensible move – to put your total debt into one loan with a much lower interest rate and pay it off.
Then you’re debt-free, yay!
All well and good, but my best intentions fell by the wayside and I never followed it through to the logical conclusion. I did little to change my spending habits; if I saw something I liked, I bought it. If a holiday took my fancy, I’d book it. I cut up my cards whenever I consolidated my debts but didn’t cancel them. Once the expiry date came round, I would get a new card through the post. I would usually be feeling the pinch because my bank account struggled to cope with all my impulse buys, so the round of overspending on credit started again. I even consolidated twice with secured loans against the house; what a dumb thing to do.
I learned the hard way – if you’re going to get rid of debt this way, you have to see it through to the end!
If you consolidate your debts, don’t take on ANY more debt until the loan is paid in full.
One option that avoids an interest-paying consolidation loan is to consider transferring to a 0% interest credit card and having a blitz on the balance to repay the whole sum as soon as possible. This is a much less expensive option than a consolidation loan.
Debt consolidation can be a good thing to do in some cases, but not all. You really need to be disciplined to avoid entering into any further credit until the consolidation loan is paid off. If you are going to do this:
- Before you approach lenders, get advice from a non-profit making organisation such as StepChange or the Money Advice Service. Consolidation may not be the right choice for you.
- Don’t take out a secured loan against your home – it could put your home at risk if you become unable to keep up the repayments.
- Pay off your credit and store cards with the loan and cancel the accounts straight away.
- Prepare a budget and stick to it.
- Rethink your spending; only buy things that you need, and set a limit for occasional treats.
- Get out of the habit of impulse buying. You can admire something without possessing it.
- Once the loan has finished, put the amount of the loan repayment that you’ve become used to paying into a savings account so that you can buy things that you need without resorting to credit.