Too many people these days do things without thinking it through. For example, adding salt to their food without tasting it; nail biting, smoking and shopping are all things we do without thinking about it. We all know that too much salt is bad for us, biting our nails makes them look ugly and too shopping gets you into debt.

Debt consolidation is one of the things which fall into the “doing things without thinking about it” category. A friend of mine, Paul, fell into this category. Having a lot of debt and a high monthly repayment he ignored the fundamental issues behind the debt problem, his lack of budgetary control, and he took out a debt consolidation loan! The effect of this is that yes the monthly repayments were reduced but to achieve this the period of the loan has increased and the total amount repayable has increased. The thing is that Paul has trained himself to ignore his debt problem (as well as his smoking) and when he starts to worry about money off he goes and buys more clothes and CD’s! It doesn’t make sense.

Paul spoke to me about his money problems when he start losing sleep over his debts. He asked me what he should do. My answer was simple, stop ignoring your debt problems and address your spending. He did give me the poor old me and lucky you chat, “you’re ok you understand about the financail market”. I put him right on that and told him that household budgeting was simple and that you didn’t need a qualification to understand that you don’t spend more than you earn.

Paul’s relationship with his creditors was like a junkies relationship to their dealer. Without question Paul could get more money, regardless of whether he could pay it back, and off Paul would trot to the shops and pub and blow the lot. I spent a whole night going through Paul’s bills and statements. He was in well over his head, to the tune of £35,678.45! He was spending approximately £1000 a month more than he earned. I showed Paul how to draw up a Statement of Affairs which details all your spending, income assets and liabilities. From that we worked out where he could save money, he changed utility supplier, broadband supplier, converted his mortgage to interest only, got rid of his life insurance, stopped paying insurance on his loans and cut his food budget dramatically. He has turned round a deficit of £1k a month to a £500 surplus!! He is now using this money to attack his debt which if he maintains his current spending/savings pattern will be paid of in 4 years.

Paul has become a lot more positive and he has also noticed a changed in his life. He told me he didn’t realise what effect his debts had on him until he started to address them. He has become a lot more positive and less lavish and stopped smoking, which is another £150 a month towards his debt. So before you get another debt consolidation loan think about it!