PaymentsJournal
SUBSCRIBE
  • Analysts Coverage
  • Truth In Data
  • Podcasts
  • Videos
  • Industry Opinions
  • News
  • Resources
No Result
View All Result
PaymentsJournal
  • Analysts Coverage
  • Truth In Data
  • Podcasts
  • Videos
  • Industry Opinions
  • News
  • Resources
No Result
View All Result
PaymentsJournal
No Result
View All Result

Credit Card Consolidation Loans: The Road to Hell is Paved With Good Intentions

Brian Riley by Brian Riley
November 16, 2017
in Analysts Coverage
0
B2B Payments' Can Fintech Finally Connect Business Payments to the Digital Wave? - PaymentsJournal
1
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

Here is a classic lender’s problem.  You get solicited for a debt consolidation loan to reduce $35,000 in credit card debt that you ran up when you had available credit line.  You earned the points, lived the high life, but all of the sudden you find that you must pay nearly four hundred dollars a month as minimum due, with a 19% APR because the free interest period passed.  And, by the way, paying the minimum due will take you well into the next decade.

Enter the consolidation loan.  As the Federal Reserve Bank of Cleveland points out, the consolidation loan will often be approved, but you might end up being tempted to do one of two things.  Even though you were well intended, and did plan to pay off all your debt once and for all, you might be tempted to use that check to further upgrade your lifecycle.  While that is somewhat reckless, what will more likely happen is that you pay off your debt, decide to keep your cards active nonetheless, then before you know it, you have that  $35,000 consolidation, and now, another $35,000 in debt. $35,000 in debt quickly became $70,000 in debt

  • Independent of the study itself, it should not come as a surprise that online “debt consolidation” loans fail to reduce a consumer’s debt.

  • By design, they can be used for any purpose at all. Lenders make no effort to force the borrower to use loan proceeds to reduce other debt and, even if the borrower pays down maxed-out credit cards with loan proceeds, that only means that the borrower now has a large new “open to buy” position on his or her cards.

  • Given this dynamic, it is also hardly surprising that many borrowers run into credit issues after re-levering with credit cards or other borrowing.

Since many of the online lending loans get booked as P2P rather than consolidation or second mortgages, some scoring systems assume the borrower has paid his bills.  With a better score, more money comes available, and away you go, more debt.

Sometimes, you just need good old fashioned discipline; ironically, if you had that discipline, you probably wouldn’t have $35,000 in debt to begin with.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

Read the full story here

Tags: CreditDebt
1
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

    Analyst Coverage, Payments Data, and News Delivered Daily

    Sign up for the PaymentsJournal Newsletter to get exclusive insight and data from Mercator Advisory Group analysts and industry professionals.

    Must Reads

    Equinix Helps UK-Based Payments Provider Enable Faster, More Reliable Payments Processing

    Equinix Helps UK-Based Payments Provider Enable Faster, More Reliable Payments Processing

    January 31, 2023
    credit card tumbling

    How to Detect, and Prevent, Credit Card Tumbling

    January 30, 2023
    Why Businesses Need to Adopt Real-Time Payments as a Competitive Differentiator

    Why Businesses Need to Adopt Real-Time Payments as a Competitive Differentiator

    January 27, 2023
    faster payments

    Faster Payments Are Set to Revolutionize Modern Digital Payments

    January 26, 2023
    How AI can Help Manage Payments Risk in 2023

    How AI can Help Manage Payments Risk in 2023

    January 25, 2023
    cross-border payments

    How to Implement Effective and Innovative Cross-Border Payment Strategies

    January 24, 2023
    credit card experiences, digital payments, b2b payments

    Will Consumer-to-Business Payment Trends Drive B2B Global Growth in 2023?

    January 23, 2023
    Faster Payments Faster Identity Verification, connected car, payments

    2023 Predictions: Authentication, Digital Identity, and In-Car Payments

    January 20, 2023

    • Advertise With Us
    • About Us
    • Terms of Use
    • Privacy Policy
    • Subscribe
    ADVERTISEMENT
    • Analysts Coverage
    • Truth In Data
    • Podcasts
    • Videos
    • Industry Opinions
    • News
    • Resources

    © 2022 PaymentsJournal.com

    • Analysts Coverage
    • Truth In Data
    • Podcasts
    • Industry Opinions
    • Faster Payments
    • News
    • Jobs
    • Events
    No Result
    View All Result

      Register to download the U.S. Bank report - Real-time payments