Avoid the temptation to spend again after consolidation

Over recent years consolidation loans have become a popular financial tool for those with a number of unsecured debts, enabling them to bundle their smaller loans, credit cards, store cards, catalogue balances, and other unsecured credit into one loan. People decide to consolidate for a number of reasons, such as making payments easier, with just one loan to pay instead of several, to cut down on the number of creditors being paid interest, and to reduce monthly outgoings and repayments. However, recent figures show that not everyone that decides to consolidate actually finds themselves better off financially.

Recent data suggests that three in five of those that decide to consolidate their debts actually end up even worse off financially, and this is because they cannot resist the temptation to spend again even after getting rid of their other debts through consolidation. Many people pay off credit and store cards using their consolidation loan, but once the balances have been cleared they go on to max them out again, leaving them with their original debts along with a new consolidation loan to pay off. This is the pitfall that has to be avoided by those deciding to consolidate.

An industry professional stated: "Consolidation loans can be a welcome lifeline for people caught in financial difficulties. But the lifeline can quickly turn into a noose if you submit to the temptation of running up further debts."

Consumers are advised to avoid running up further debts once they have taken out a consolidation loan, and instead to concentrate on repaying the consolidation loan in order to try and get it repaid as quickly as possible in order to get rid of the debts altogether. Any credit and store cards should be cut up to help avoid temptation if necessary.

Tom Smith
11th June 2007