Over 6 million Brits have chosen to consolidated their debts in the last 3 years
Research published by Money Expert reveals that over 6 million Brits have decided to consolidate their debts in the past three years.
The preferred method of debt consolidation, where a person decides that they now have too many or too much unsecured personal debt and decide the time is right to consolidate this as one much larger debt, in the UK is normally undertaken through a process of applying for an unsecured personal loan and then using the proceeds of the personal loan to pay off the outstanding debt.
Although interest rates may be rising, unsecured personal loans are still a preferred method of consolidating outstanding debts as the interest rate charged is normally significantly lower than interest being charged on other debts that are repaid with the proceeds from the unsecured loan. As a result, Brits who have charged large amounts to their high interest charging credit and store cards may elect to consolidate the outstanding amounts on their credit and store cards into one larger unsecured personal loan debt that charges a much lower rate of interest.
Nonetheless, related research from uSwitch.com has found that a number of Brits who elect to consolidate their debts then re-use their credit and store cards to create further debt. In turn this causes them far greater financial worries as now they no longer only have to worry about how they are going to meet the minimum repayment each month on their credit card, but they also have to worry about how they will make the repayment each month on their personal loan.
More worryingly, however, is the number of Brits who are applying for personal loan amounts that are more than they need to repay their outstanding debts and who are using the additional amount left after repaying their debt to fuel their cost of living expenses. This type of borrower in the UK nearly always then runs up additional credit and store card debts and is then left in a very tight financial situation as, with their credit limit used up, they can no longer borrow money on cheaper personal loans to repay their outstanding credit and store card bills. In short, this type of borrower is creating a double-whammy of debt for themselves.
Commenting on the growing trend in the UK to consolidate smaller debts into one large unsecured personal loan, Sean Gardner, chief executive of Money Expert, said: "Debt consolidation is entirely sensible and a good way to get your finances under control if you owe money to different lenders at varying rates of interest." However, Mr. Gardner says that debt consolidation should also be a "wake up call" for Brits who have let their finances get out of control to address their level of borrowing and get their financial health plan back on track so that they can become debt-free.
Echoing the comments of Mr. Gardner, Nick White, director of personal finance at uSwitch.com, said UK consumers should only borrow the necessary amount they need to repay their debts and that debt consolidation in the UK should not be seen as a "quick fix" to the borrower's financial problems.
2nd March 2007
It is easy for debt to get out of control. Student loans, losing your job, becoming ill or any number of other unforeseen events can easily cause debts to mount up.
If it seems advertisements for debt consolidation loans are everywhere, it is because consolidated loans are big business. The primary reason for people taking out personal loans over the next year will be for debt consolidation.
Consolidating debt is growing in popularity. The signs of this are everywhere. From television advertisements, to letters in your post box, offers of debt consolidation abound. Debt consolidation is a huge business and the primary reason for new personal loans is debt consolidation.