Consolidation loans can lead to increased debt levels
According to a recent survey by Fool UK, many people that take out consolidation loans in a bid to try and reduce or control their debt levels actually end up owing even more money.
According to the results of the survey over 50% of those taking out this type of loan actually ends up owing more money than they did originally. Every year many people in the UK apply for consolidation loans, which are designed to pay off smaller unsecured loans and credit cards, and wrap all unsecured finance into one loan.
The survey indicated that three out of every five people that take out a consolidation loan in the UK end up paying even more money through an increased accumulation of debt. In some cases consolidation loans do help people, enabling them to manage their finances more easily with just one repayment to deal with instead of several, and also enabling them to pay off smaller, higher interest debts and make payments on one lower interest loan instead. However, this is not always the case.
Many people take out a consolidation loan to pay off other debts, and then go on to run up other debts again, so they then have to make repayments on the consolidation loan and a range of other financial commitments.
For instance, a number of people use consolidation loans to pay off credit cards, but once the balance on the credit card is cleared it is all too tempting to rack up debt on it again, which is what many people tend to do. The average consolidation loan in the UK is for £16,459 but the survey revealed that even when given the opportunity to do so most people will not pay off the loan early.
One spokesperson from fool.co.uk stated: "Consolidation loans can be a welcome lifeline for people caught in financial difficulties. But the lifeline can quickly turn into a noose if you submit to the temptation of running up further debts."
Tom Smith
22nd May 2007
More Information:
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