I have just written a post on my Facebook page about one of the most common questions I am asked:-

“Should I consolidate my debt?”

20111702_sBefore I give an answer, I always ask if they are still using credit cards and if they are, are they paying them off in full every month. If they are then debt consolidation can be useful. It makes payment easier, just a single payment for all of the different debts you have eg. credit card(s), store cards, personal loans etc and it is often a much lower interest rate than credit and store cards.

If however, they tell me that they are still using credit cards I strongly advise that they don’t go for debt consolidation.

Why? It is all too tempting. Suddenly, all your credit cards are paid off and all that wonderful credit is available to you again and you are still in the habit of using it. The first time you tell yourself “I need a new dress, pair of shoes (fill in the blank………) you’ll be reaching for the credit card! In an earlier post of mine http://bit.ly/1IuNvVj I discussed the difference between needs and wants and the impact, not knowing the difference, can have.

I wish I’d had that advice a long time ago. I had a very friendly bank manager and I was always consolidating my debt, only to go back in a month or two to do it again!! The only people who benefitted by this apart from the bank, was the guy who was always coming to put a value on my home so that I could borrow against it. By the time I sold it  and paid off all my debt ( the ultimate debt consolidation) there wasn’t much equity in my property.

So if you are thinking of consolidating your debt, make sure you are not increasing it before you do. This means for most people, stopping using your credit cards first.

If you want to get out of a hole, first you have to stop digging! So it is with debt. If you want to get out of debt, first you have to stop incurring it.