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What percentage of the people who do debt consolidation end up in debt again?

Debt consolidation can be a great way to take control of your finances. Consolidating your debts into one larger loan and making one simple, affordable monthly payment can help you to reduce your outgoings, save money and simplify your household finances.

However, a debt consolidation loan won’t necessarily solve your debt problems on its own. A change of approach to your spending and careful money management is also needed to ensure that it works. Many people end up consolidating their debts before finding themselves back in debt again.

Our guide looks at how easy it is to end up back in debt and how you can make sure that debt consolidation does solve your debt problems once and for all.

Ending up back in debt again

Leading American talk show personality Dave Ramsey writes: “A friend of mine works for a debt consolidation firm whose internal statistics estimate that 78 per cent of the time, after someone consolidates his credit card debt, the debt grows back.”

Chris Viale, manager of the US Cambridge Credit Corporation estimates a lower figure of 70 percent, according to Jenny McCune of

Whichever figure is correct, it is clear that a huge proportion of people end up back in debt after consolidating their borrowings. Deborah Shields, information and policy officer for the Money Advice Trust says that consolidating all your debts into one makes things easier to manage, but essentially you're just shifting the debt around.

"At the National Debtline, we hear from people who've consolidated their loans and are still in a real mess”, Shields says.

If you want to avoid getting back into trouble after you have consolidated your debts, it is important to follow our next two pieces of advice.

How to ensure that debt consolidation is the end of your debt problems

With experts estimating that up to three quarters of people who consolidate their debts end up back in debt, it is important to pair your debt consolidation with a change in the way that you manage your household finances. To avoid getting back into debt you should:

Understand how a debt consolidation loan works

Deborah Shields from the Money Advice Trust believes that many people take out a debt consolidation loan without fully understanding how it works. She says: “People don't realise that the payments will be made over a far longer time and effectively they are paying interest on interest.”

If you are considering debt consolidation then it is important that you understand how such a loan works. For example:

  • The term of the loan is likely to be longer than existing unsecured loans

  • You may end up paying back your debt over a longer period of time

  • Even if the interest rate is lower than your existing debts you may end up paying more interest in total as you are paying back the debt over a longer period

  • The loan will often be secured on your home meaning that if you don’t keep up repayments then your home could be at risk

Careful money management

Debt consolidation is not a ‘magic bullet’ that will solve your debt problems. To become debt free you have to carefully analyse your spending and work out how and why you got into debt in the first place. Unless you make changes to your spending habits you could well find yourself back in debt in the future.

It may help to create a ‘budget planner’ which contains your income and outgoings. You can work out what you spend every month and be careful not to spend more than you earn. Any surplus money can be used to pay down your debts.

If you don’t make changes to your money management when you consolidate your debts, it is unlikely to work. You could then find yourself as one of the 78 per cent of people back in debt.

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