Debt consolidation loans – a good idea?
People are using guarantor loans (in most cases) to repay existing debts that they have accumulated such as payday loans with no guarantor and in many cases, these payday loans can reach well over £1,000 because the individual has taken one payday loan, then another and another, until it reaches the point that they are unable to repay the loans each month so end up rolling the loans over. By rolling the loans over, borrowers end up paying approx. £15 a month per loan, just to stop the cheque being cashed or the money being taken from their account.
Now, critics of debt consolidation loans say that they only exacerbate the problem because they are simply adding to the individual’s debt; our view is that if a new loan repays the existing payday loans and lets the borrower have more disposable income each month (because a loan taken over a longer period will result in lower monthly repayments although be aware that the overall amount to pay back will usually be greater) then that can only be a good thing for individuals who have zero disposable income each month.
It’s all very well saying don’t take on new debt but what is a person to do if the loans they are currently repaying cripple them financially to the degree they have no cash left each month after paying these loans back. That can’t be right can it? We agree that a guarantor loan maybe isn’t a long term solution but to the borrower who is stuck on the payday loan credit cycle and can see no way out of it, it maybe a short term fix for their immediate problems of paying for food, fuel, clothing, etc.
As an example; A lady has 7 payday loans totaling £700. She has now spent the money and is in no position to keep rolling these loans over each month and anyway, it is costing her £105 every month just to do this. In a few months, the payday lenders will stop her rolling the loans over anymore and the loans will start having to be cashed each month. So, if in 2 months one of the lenders called for their £100 she would have to repay it AND still keep rolling over her other loans at a cost of £90 each month. That is £190 she has to repay and this will go on until a few of them will be repaid and at that point, this lady may be in such a state financially that she may have to start the whole payday process again.
Now, in this case, who still thinks debt consolidations are always a bad thing?
