Most debt consolidation leads to more debt
Many people have consolidation loans continue to build up debt with credit cards
Friday, 16, Feb 2007 12:05
Most people consolidating their debts into a single loan end up taking on more debt, a new study reveals.
Around 66 per cent of those who have lumped their debts together through borrowing more money end up building up even more debt, research from MoneySupermarket.com reveals.
Those with consolidation loans ended up building up more debt on their credit cards (28 per cent), by using their overdraft (12 per cent), or by taking out another loan (five per cent), or through a mixture of the above (21 per cent).
This leads almost a third (30 per cent) back to consolidating their debts again.
"Debt has certainly become the common curse of modern times. Whereas 40 years ago being in the red was considered a last resort, it seems many of today's Brits are much more accustomed to taking on debt - although actually being able to control it is another thing," commented Tim Moss, head of loans and debt at MoneySupermarket.
"People need to be careful that the ease of getting credit does not catch them out.
"Taking a personal loan to consolidate debts can be a useful way for people to get their finances under control but a loan for these purposes should be considered carefully and only regarded as a measure for becoming debt-free - not as a license to go spending again.
"As we see banks increasingly feel the pressure of consumers defaulting on their credit arrangements we can expect them to begin tightening their lending criteria and pushing personal loan rates up higher."
Most consolidators (57 per cent) believe they will always live with debt, with only 26 per cent confident they know how to manage it.
Debt consolidation loans have been taken out by 13 million Britons.
For more information on getting out of debt see myfinances.co.uk's debt consolidation special.