John’s story is unfortunately typical: A few years after graduating university, he found himself in a large amount of debt, the result of living beyond his means after getting his first, entry-level job. He convinced his parents to co-sign a debt consolidation loan to zero-out his credit card balances and put all of his debt on a fixed-rate of interest with regular payments and a clear timeline to being debt free. This was brilliant and a great decision but a year later, John was mortified to discover that he’d accumulated nearly half again as much debt on his credit cards!
This is unfortunately common: Coming to the realization that your debt is unmanageable and taking steps to consolidate and negotiate it into something you can work with is commendable, but many people neglect the essential next step: Recognizing the behaviors that led you into debt in the first place and changing them. Simply put, even paying off your debt and getting to zero means nothing if you continue the lifestyle and decisions that simply bloat your debt load again in a matter of months or years. Any debt reduction plan has to include recognition of the mistakes that led you into debt in the first place and a plan to avoid those mistakes in the future.
The danger is that if you take on a consolidation loan to clean up your debt, it is still debt just a more sane and manageable form of it. If you acquire new credit card debt while still carrying the new loan, you are now in twice as much debt (or worse) and your ability to pay both sides of your debt coin are compromised. Not to mention that getting out of the second wave of credit debt won’t be easy.
When negotiating with a bank or debt service to rectify your debt situation, make sure you consider how you’ll stay out of debt in the future by making and sticking to a budget, by reducing expenses and lifestyle, and by initiating a savings scheme. Don’t snatch defeat from the jaws of victory!
Mark Quigley is the owner and director of Darcey Quigley, an independently owned commercial debt recovery company based in the UK.