Example- How reduced monthly outgoings can encourage more spending
Supposing you have a net income (i.e. after-tax) of £1000 each month, and
that before taking out a consolidation loan you were finding that £1100 was
going out each month, forcing you into a trap of seemingly spiralling debt.
If £400 of these outgoings were going on un-consolidated debts, the
temptation to consolidate these to a £200 per month personal loan is obviously
very attractive. This that leaves you with outgoings of £900 per month instead
of £1100.
Although you may feel better off because of this, the problem is that your
debts will now take much longer to repay.
The really important target to set yourself is to make sure that the £100
surplus is not then lost by increasing your spending. If you do this, it is only
a short step towards increasing your spending by another £100 each month, and
ending up exactly where you left off. For these reasons, we always advise
setting up a strict budget plan when taking out any form of debt consolidation
loan, and making sure you stick to it.
This budget must include setting aside a certain amount of money each month
into a savings account, and periodically using this money to make lump-sum
payments against your loan.
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