COMMENT
The Dangers Of Rolling Up Your Debts!

I'm a huge fan of the Fool's discussion boards, where thousands of smart, sensible, friendly Fools help each other with a huge range of topics.

One of my favourite boards is Dealing with Debt (DWD), where Fools ask for help or post advice on getting out of the red and into the black. I love DWD because, having dug myself out of £50,000 of debt in the late Nineties, I have a personal crusade to turn borrowers into savers and investors!

This DWD post (from newcomer Raven111) and subsequent replies caught my eye earlier this morning. In it, Raven111 warns other Fools to avoid consolidation loans unless they have their spending under control. Raven111's explained how her initial consolidation loan of £8,000 three years ago, together with out-of-control spending, has grown relentlessly.

Her total debt - made up of two loans, two credit cards, an overdraft and student loans – has now reached £50,000. However, the good news is that she has had what we call a 'lightbulb moment', and is taking steps to dynamite her debts. Having had three personal loans and around fifteen credit cards on the go at the end of my lengthy credit binge, I know how she feels!

My own painful experience of debt made me vow never again to have another personal loan – and I've kept my promise for six years. However, many borrowers think that one way out of debt is to roll up all their debts into a single mega-debt and, hey presto, their problems are over. Sadly, that's rarely the case, as this survey shows. Out of 139 replies, 117 people admitted that they ran up yet more debts after arranging a consolidation loan. That's almost five out of six people (84%). Aargh!

We've all seen the blurb in those awful finance ads that seem to dominate newspapers, magazines and commercial TV:

"Pay off all your debts and have one easy, affordable monthly repayment. You can even borrow more on top!"

Here's my translation:

"Transfer your existing debts to us. Your monthly repayment may go down, but that's because we stretch out your debts over a looooong period. Oh, and have some extra cash to buy yet more guff, gadgets and trinkets, which will get you into even more difficulty!"

As old hand Clariman rightly warns in this post, the only real way to dig yourself out of debt is to earn more and spend less. With careful budgeting, you can throw more disposable income at your debts, paying off the most expensive first. We call this snowballing - here's how it works. Also, our FREE Getting Out of Debt handbook shows you how to make all this happen for you.

On the other hand, if you've already learned your lesson and had your personal revelation, you may be one of the minority of borrowers for whom a consolidation loan will do the trick. If you have decided to go down the loan route, please don't sign on the dotted line just yet. Instead, read Personal Loans Without Moans Or Groans, which includes my ten top tips for choosing a personal loan.

By the way, we have the UK's table-topping Best Buy personal loan in our Personal Loans centre - 5.7% APR on £1,000 to £25,000 from Northern Rock.

Personally, my favourite way to tackle debt would be to harness the power of 0% credit cards. By transferring your existing debts to a 0% card, you can avoid paying interest for up to nine months. Searching the eMoneyfacts database, I found 154 differently branded 0% cards, so you need to choose wisely! Learn the rules of the game in From 30% To 0% In Sixty Seconds!

We Brits have amassed £55 billion on our credit cards, plus a further £132 billion on loans, overdrafts and other unsecured lending. Amazingly, despite this colossal debt, fewer than one in five people have transferred an existing debt to a 0% card. Sadly, when I was whittling away at my debt mountain, 0% cards didn't exist, as the first was launched by Egg on Christmas Day, 2000. Had they been around five years earlier, I could have avoided paying thousands of pounds in interest. Oh well, we live and learn – and I've learned that life is better being a shrewd saver, rather than a bonkers borrower!

More: Check out our great deals on personal loans and 0% credit cards | Visit our Get Out of Debt centre.

Many thanks to Raven111, IMBalance and Clariman for their inspiration.