We know – the idea of getting rid of debt by getting yourself into debt sounds more than a little counterintuitive.
How can you get rid of debt by getting yourself into debt? Surely borrowing money means that you’re still in debt?
Of course, you’re absolutely right. Unfortunately, there’s no magic button that can just wipe out your debt. (That’d be nice though, wouldn’t it?)
Borrowing enough money to clear your debts and consolidate them into one manageable payment, however, can help you on your way to getting rid of debt much quicker.
How does borrowing money get rid of debt then?
Although it might not be the magic button that erases your debt, borrowing money to pay off existing debts and combine them into one monthly payment can actually help some people to slowly and steadily progress towards living a debt free life.
Put simply, it combines all of the payments into one monthly payment that happens on the same day every month (usually for a period of 5 years).
What are the advantages of getting rid of debt with a consolidation loan?
Well, first up, with a debt consolidation loan you know when and how much money will be coming out of your account, giving you a whole month to budget and prepare for it.
On top of that, unlike credit care minimum repayments, the repayments for your consolidation loan will be the same amount every month, so you’ll always know how much is leaving your account and when.
Not only does this make budgeting much easier, but it saves the hassle of having to work out when your overdraft fees, credit card repayments, loan repayments and other direct debits are leaving your account throughout the month.
As well as steadily getting rid of your debt, getting a debt consolidation loan can also provide a peace of mind: you’ll know when you’re due to pay money, you won’t have to worry that other payments are going to come out of your account and you’ll know that you’re steadily getting rid of debt and making your way towards a debt free life.
That sounds great – but there have to be some disadvantages, right?
Well, yes and no. For some people, a debt consolidation loan might actually end up costing them more money in the long run. Be sure to compare the APR on your debt consolidation loan against the APR and interest on your credit cards and make sure that – however frustrating it might be making lots of different payments – you’re not better off continuing to pay off your debt in the same way you have been.
Another disadvantage of debt consolidation loans has less to do with APR, interest and all of the financial stuff and more to do with your spending habits – once you’ve cleared your debts into one manageable monthly payment, it can be very tempting to feel like the problem is dealt with. (It can also be very tempting to think ‘I’ve cleared my debts – I deserve a treat!’).
However, debt consolidation loans are only effective in the long run if you use the time you’re making the repayments to change the behaviour that got you into debt in the first place. So, while you’ve got the opportunity to start getting rid of debt, make sure you’re also getting rid of future debt too: if you don’t need the credit card and think you might be tempting to splurge, cancel it. If you’re living above your means, sit down and make a budget to see where you can cut back. (We love making budgets here at Bamboo – if you want some advice on where to get started, check out our post on budgeting.)
Is getting rid of debt with a debt consolidation loan right for me?
It depends. In many cases, debt consolidations are the helping hand that many people need to finally get rid of debt that’s been hanging around forever. However, there are also people for whom debt consolidation loans aren’t the best idea – people with good interest rates on their debts, for instance.
If you’re not sure whether a debt consolidation loan is the right option for you to begin getting rid of debt, make sure you take the time to speak to somebody before you make a decision. (For a comprehensive list of every organisation that offers free financial advice, make sure you read this article by the Money Advice Service.)
Here at Bamboo, we offer loans for anywhere between £1,000 and £8,000. If you’ve sought advice and are looking to borrow money to consolidate your debt, why not see how much you could borrow from Bamboo? If you’re approved, you could be on your way to repairing your credit score within 24 hours. (Representative APR 49.7%. A guarantor may be required).