What happens to the accounts you clear?
Taking out a new loan with a different bank often means that your existing
credit cards, overdrafts and loan stay accounts open.
This can mean that you are free to spend even more now that they are all
cleared to a zero balance. For some people this may be seen as an advantage,
although in terms of reducing your debts, it is certainly a disadvantage. This
is why it is important to close any account that you consolidate. Some people
argue that they do not want to do this because they may be losing their
entitlement to borrow more money, which they might need in the future.
The reality is usually that keeping these accounts open just gives the greatest
temptation to spend more money on them, especially as busy shopping seasons such
as Christmas and the summer holiday periods come round. If you have maintained a
good payment history on account, there is usually no reason why you will not be
given the same terms again, should you need that account in the future. In the
meantime, you are usually better off by cancelling any existing credit cards and
other borrowing, or the very least calling your card issuer and asking for a
reduced spending limit.
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