Is consolidating your debt ever a good idea? In my personal opinion it is not, its just another way to keep you in debt for longer than you need to be. When I finished university, I finished debt that had almost nothing to do with my studies but I was fortunate enough to get a job before I even graduated. But before I finished university, I went through a tough financial time and made so many money mistakes that I regret. After dodging many a call from debt collectors, I got referred to a debt agency that ‘wanted to help me out and ease my worries’. When you are in debt, you are susceptible to a lot of things and it sounded like a good idea.
Before I explain what happened, let me explain what debt consolidating means and the idea behind it. Debt consolidation is a nice term used by finance gurus to mean, get into more debt to pay off all your other debts and just keep one debt. It is meant to relieve stress from being chased by multiple companies, you just deal with one and often the one debt is ‘meant to be a low interest rate loan. Debt consolidation is not a good idea for everyone because it means larger payments to the one company for a long period of time. The idea behind it sounds reasonable and gives many people suffering debt anxiety some comfort only have 1 debt to worry about.
Disclaimer: I am not a financial advisor, all opinions shared are based on my experience and research.
Is Consolidating your Debt Ever a Good Idea?
As I mentioned earlier, when I was at university I had a mountain of debt that I got myself into and found myself drowning in when I was graduating. So when the ‘Good Samaritan’ reached out with an offer of consolidating all one debt in and I quote ‘one easy and affordable repayment’ I was over the moon. Thinking about it now, I am so glad we live in an internet era where you can google pretty much anything and everything. The ‘Good Samaritan’ explained to me how it would all work, they would contact all the companies I owed money to on my behalf and ask them never to contact me again.
Having someone stand in-between me and my creditors was such a huge relief to me mentally. Everything was going well until he mentioned I needed to take out more debt (loan) to repay them all and then just start making payments to the one company. The bells started ringing, I was already in huge debt, why would I want to take out more debt to clean another debt? Its like me withdrawing money from my credit card to pay my overdraft with my bank. Also, why would taking out a good loan to repay all my debt result in me repaying a big chunk of money and repaying that loan for over 6 years?
I did not like that idea, sure I was in debt but I was not owning £20k, I owed roughly £12,000 and it shouldn’t really take me that long 6+ years to repay the new loan which funny enough, the debt was £12k, the loan would be £16k and let’s not forget the interest rates and late fees if I missed a payment etc. It all of a sudden turned from easy my debt anxiety to increasing my blood pressure and making me feel like I would continue to live in a debt circle unless I hit the jackpot. It was a very stressful time for me because now I had two options; continue to bury my head in the sand or come up with an action plan and I chose the latter.
Because I believe and continue to believe consolidating your debt is a bad idea, I sat down, did some research and came up with the following solutions:
- I needed to know how much money I earned, what my outgoings were (excluding the debt) and what was left.
- I needed to know how much debt I had incurred (thanks to late fees and interest rates)
- I knew I needed a budget tracking sheet, one tab for my incomings and outgoings and second tab for all the debt details (who I owed, since when and how much) to the last pence.
- Once I had this information I worked out what my essential bills were (rent, utilities, food, and transportation) and subtracted that from my one income source.
- Then afterwards, I divided the money I had left equally between all my creditors and went about calling each one and setting up a repayment plan and being firm and honest with what I could afford.
- Because I already did the initial work by writing down all my debt, every creditor wanted to see that list before approving the repayment plan and they all did.
- I chose the Snowball Method to repay my debt but you can also follow the Avalanche Method each has its own benefits.
- Instead of taking me 6 years to repay £12k, I was able to pay it all off within 18 months.
Is consolidating your debt ever a good idea? The answer to this question is still not at least for the average Joe, the working middle class. It is never a good idea to get ‘more debt’ to repay your other debt, that is just a viscous cycle that you never wanna get into because it is a struggle to get out of. If however you feel that consolidating your debt makes much financial sense to you then, you do you.
Have you ever been in so much debt you considered consolidating all your debt?
Julie Gay says
I agree it’s generally a bad idea, but we have done it. When applying for a mortgage banks go on about “affordability” and insisted on a certain amount of unassigned income each month- so the lower monthly payments but higher long term debt meant we could keep the house. X
Jenna Farmer (@jennafarmeruk) says
This is such a useful guide! Thankfully not in debt but have a few friends who are so will share this!
lukeosaurusandme says
You’ve raised some really good points here about debt consolidation that I hadn’t really thought about before. I think it depends on a lot of factors, but generally speaking, it does make life more difficult.
Miranda says
Thanks for your comment and yes most times it does make it difficult for those already struggling with managing their money.
Jessica Collazo says
I actually believe more in the debt snowball by Dave Ramsey. But this is very interesting it could help for other type of debt. I mean, maybe for multiple credit cards debts.
emman damian says
I think it really depends. I like making sure I segregate them per group. I don’t like bundling it as one as it will be higher in interest and much more tough to pay back. I guess it depends also on your capability to pay back.
Miranda says
That is so true, your capability to pay back had a lot to do with whether its a good idea or not.
kacielmorgan says
I’m really glad I have managed to clear my debts over the last couple of years. Owing money can be a stressful feeling. I can see how consolidating your debts can be helpful for some though!
Miranda says
Owing money is definitely stressful and true consolidating for some might help but debt on debt for me is a no-no.
Anngelic says
I have had a mountain of debt too, when I was younger – and I wish I would have had your advice back then, that would really have helped me out.
Cinny says
Thanks for explaining this. I’ve always wondered what it meant.
Marysa says
This is interesting to learn about. I have heard about snowballing as well. These are good financial tips to consider when you have debt.
Christine says
Fortunately, I have never been in debt. You make good points in this post worth considering. I think it’s smart to not add more to an existing debt. It’s like digging a deeper hole that is hard to climb out of.
Miranda says
Exactly, its important to think of a smarter manageable plan than digging a deeper debt hole.
Amy says
I 100% agree with you. When I finished university I was faced with a mountain of debt too. And even though it was overwhelming until I found a good job, I knew that consolidating debt would have made the situation worse. Much better to manage your debt individually and prioritise.
Miranda says
Thanks for this and yes prioritise and pay them out individually is better than consolidating.
Angela Ricardo Bethea says
What an interesting topic and will keep those points in mind for future use.
Julie Cao says
I cannot imagine what you have been through in your university years. It must be so stressful. Glad you come up with a good plan and repaid your debt in 18 months.
Miranda says
Thank you, it was a tough time but I am glad I persevered and it worked out.
Lyosha Varezhkina says
I have to agree, for me it is always a bad idea
Nkem says
This goes to show that people should definitely do their research before making such decisions! I consolidated my student loans and it worked out for me, but may not be the same for everyone.
Miranda says
I am glad to hear that student loan consolidation worked for you and agree research needs to be done but for most debts it keeps you in debt for longer.
aisasami says
I have been in debt before but it was with the government, so I had to make a straight payment and couldn’t use any loans.
Bhavya Gandhi says
I am very bad when it comes to loans etc, never really had to deal with loans! this has been very insightful for me! Thanks
bhavya says
I am very bad when it comes to loans etc, never really had to deal with loans! this has been very insightful for me! Thanks
Kuntala says
Great post. Debt consolidation is one of those things that people try to convince you is a great option because they’re the ones getting paid to do it for you.
Miranda says
Right!! They try to talk you into believing its a good thing but its not always.
Mae says
One debt at a time is ideal! Thankful that I’ve never been in a position otherwise I’ll lose my mind.
Colleen says
Thank you so much for sharing this. I see commercials all the time for debt consolidation, and at first glance, it seems like a good idea. I think this is going to save a lot of people headache and money.
Rhian Westbury says
Thankfully I’ve never been in a position where I’ve needed to do this, but you’re right it’s not a good idea to take out more debt in order to clear your debt. You’re tying yourself into something for longer and paying more x
Miranda says
Exactly and I think most advisors prey on people’s minds but forget to tell them you will be in it for a really long time
Samantha Donnelly says
I think when you are in debt and it starts to spiral you do think one easy payment a month is the answer, luckily I have never been in this position
Miranda says
Totally, I explored that option too until I realised one payment is not always the answer and you stay in debt for longer
Cookappetite says
I have so many wants right now but I’d never think of getting a loan because I consider that to be bandage. It’s even worse when you get a debt to pay for your other debt.
sumit says
i am in some major debt of credit card and it is affecting me in a way that my savings are getting under pressure .. this article definitely was an eye opener for me
Fransic verso says
That’s awesome to deal with one instead of dealing with too many. I think it’s great idea.
Cookappetite says
I have so many wants right now but I’d never think of getting a loan because I consider that to be bandage. It’s even worse when you get a debt to pay for your other debt.
Miranda says
I agree, it makes things worse getting more debt to pay for other debt.