Debt consolidation seems appealing because, in most cases, there’s a lower interest rate on parts of the debt, and it usually includes a lower payment.
But, in almost every case, the lower payment exists because the term gets extended, not because the debt is less.
They also probably haven’t saved for all of the “unexpected events,” which will eventually become debt too.
In other words, the good money habits for staying out of debt and building wealth aren’t there—their behavior hasn’t changed—so it’s extremely likely they will go right back into debt.
It’s typically considered for people who have high consumer debt.
But most of the time, after someone consolidates their debt, the debt grows back. They still don’t have a game plan to pay cash and spend less.
You will now pay ,080 to pay off the new loan versus ,392 for the original loans, even with the lower interest rate of 9%. Get an extra job to bring in more money, and start paying off the debt.
This means you paid ,688 more for the “lower payment.” Not such a good deal after all.
If he sticks with his current loans it will cost him £4,145.99 in interest and fees to pay off his debt.
If you’ve got lots of different debts and you’re struggling to keep up with repayments, you can merge them together into one loan to lower your monthly payments.