Consumers should close credit card accounts after consolidation

Every year many people in the UK decide to take out a consolidation loan in order to try and repay smaller debts with high interest rates, such as credit cards and store cards, which are well known for the extortionate rates of interest often charged as well as the length of time that they put consumers in to debt for.

Many consumers take out a consolidation loan, repay their smaller debts, repay the consolidation loan over the set period, and then enjoy being out of debt.

However, according to research there are also many people that take out a consolidation loan, repay their credit and store cards, start to repay the consolidation loan as arranged…and then run up balances on their store and credit cards again. This leaves them with the original, high interest credit and store cards debts with an addition debt in the form of the consolidation loan. This is the type of situation that often tips consumers over the financial edge, and those taking out consolidation loans should ensure that they act sensibly and responsibly in order to avoid getting into hot water.

Borrowers that take out a consolidation loan to repay credit and store cards are advised that simply cutting up the cards after repaying the balances isn’t enough, as this makes it far too easy to re-spend on them without thinking twice. It is advisable to contact the card companies in questions and cancel the account altogether, as this will stop you from being able to spend on a whim, thus running up an unnecessary balance. It may be a good idea to keep one low credit limit card at hand in case of emergencies, however.

One housing association worker who paid off her cards with a loan and then ran up balances on her cards again stated: 'It was a nightmare. I thought my debts were bad at the start, but after taking out a loan, repaying my cards, and then spending on them again I was in a worse situation than ever.'

Tom Smith
19th September 2007

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