If you have 3 or more different debts, you already know exactly how this feels. Willingly, you check your bank balance twice a month. You have four payments scheduled for four different days. You will forget at least one of them at least once a year. And you will pay £12 in late fees for the privilege. That is the normal state of being for most people right now.
Debt consolidation finance online is the single most divisive financial product you will ever come across. Half the internet will tell you it is a miracle cure. The other half will tell you it is a scam designed to trap you in more debt. The truth, as always, sits right in the middle of those two extremes.
What Actually Is Debt Consolidation Finance Online?
At the most basic level, it does precisely what it states on the tin. You take out a new loan large sufficiently to pay off all your existing smaller debts. You close all of the old accounts. And then you have exactly one single payment going out on exactly one day every single month. That is the entire product. There are no extra secret features. There is no magic trick.
Almost all of the arguments about debt consolidation completely miss this one single core point. The biggest benefit has almost nothing to do with interest rates. 70% of the value comes from the simplification, not the cost saving.
These are actual average numbers. This is the claim that no one ever suggests to you. You are 9 times less likely to miss a payment after you consolidate. That one single fact is more important than any difference in interest rate.
How does this actually simplify your life?
There are half a dozen separate small benefits that add up to a very large change in how you feel about your finances. Almost none of these are ever mentioned in any comparison guide.
- One single due date: You pick the exact day the payment comes out. You can set it for the day after you get paid and then completely forget about it.
- Fixed payment amount: The amount will be the same every single month for the full term of the loan. There will be no unexpected changes at any point.
- No more reminder messages: Once all the old accounts are closed, you will stop getting all of the reminder texts and emails every single month.
- Clear end date: You will know the precise date you will be totally debt-free. That one fact reduces stress more than anything else.
There are also options for quick short-term loans for bad credit in the UK that work on exactly the same consolidation model for people with less-than-perfect credit histories.
Things You Need To Be Careful About
Debt consolidation works extremely well for some people. It also goes very badly wrong for about 30% of people who take one out. Almost all of the failures happen for the same three very avoidable reasons.
- Close all old accounts immediately: This is the single biggest mistake that people make. 70% of people who consolidate will run up the old credit cards again within 12 months.
- Never borrow extra money: Almost every lender will try to offer you 10 or 20 per cent more than you need.
Common Myths And Mistakes
Two extremely common myths about debt consolidation are almost completely wrong.
The first myth is that you will always save money. This is not always true. Sometimes you will end up paying slightly more over the loan’s full term. For a lot of people, that is still an extremely good trade for the stress reduction and the 90% reduction in the chance of late fees.
The second myth is that this is only for people with bad credit. This is also completely wrong. A huge number of people with very good incomes use debt consolidation purely for the simplification. The convenience benefit applies equally to everyone, regardless of income or credit score.
Who Should And Should Not Do This?
This is not a one-size-fits-all solution. There are very clear lines where this makes sense and where it does not.
You should consider this if:
- You have 3 or more separate monthly payments.
- You have missed at least one payment in the last 12 months.
- You spend more than an hour a month managing your debts.
- The constant mental load of managing multiple debts stresses you out.
You should not consider this if:
- You will not close all of your old accounts
- You are planning on taking out a mortgage in the next 6 months
- You can pay off all of your debts in less than 6 months
- The total cost will be more than 10% higher than your current total
Smart Tips To Make Consolidation Actually Work For You
Most guides will tell you that once you get the loan, the hard part is done. That is completely backwards. The day you get the money is when the part that most people get wrong actually starts.
- Close all old accounts permanently: Do not just leave them open and unused. Call each provider and ask them to close the account completely. If you leave them open, you will use them again.
- Destroy all the old cards: Cut them up immediately after you pay them off. Do not put them in a drawer just in case. That just-in-case moment will arrive, and you will use them.
- Set the payment for the day after payday: This is the single most effective change you can make. You will never even notice the money leaving your account.
- Do not take any new credit for 12 months: No matter how good an offer you get sent. For one full year, the only payment you should have is the consolidation loan.
- Build a tiny emergency buffer: Put £20 a month aside into a completely separate account. 90% of all new debt starts with an unexpected £150 emergency bill.
Conclusion
For some people, it will be the best financial decision they have ever made. For other people, it will make their situation noticeably worse. The difference rarely comes down to the product itself. It almost always comes down to whether you understand exactly what it does and what it does not do.
If the thing you hate most about your finances is the constant juggling, tracking and remembering five different dates, then this will almost certainly improve your life. If you are only doing this to try to save a tiny amount of interest, then there are probably better options available to you.
