6 Million Brits Consolidating Their Loans

Friday April 13, 2007

The preferred method of debt consolidation in the UK is where unsecured personal loans are combined into one loan with a lower monthly payment. While this is a positive move in the short term, it can be fiscally devastating over the long-term if done in the wrong way.

Unsecured personal loans are the preferred method of consolidating loans. The interest rate is normally lower than interest being charged on credit cards and store cards.

Research from uSwitch.com revealed that a number of Brits who consolidate their loans continue to use their credit cards and store cards to create further debt.

The number of UK consumers who apply for personal loans that are higher than the amount they need to consolidate their loans are using the extra money, not for wealth generating, but to maintain a higher lifestyle.

This type of debt is not true debt consolidation, but is the consumer’s attempts to circumvent the rules and borrow more money than they can afford to repay.

Sean Gardner, chief executive of Money Expert, said: “Debt consolidation loans 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 this is a “wake up call” for UK consumers whose finances are out of control.

Echoing Mr. Gardner, Nick White, director of personal finance at uSwitch.com, said UK consumers should not view debt consolidation as a “quick fix” to their financial problems.

True debt consolidation can clear up debt in a relatively short time, but it should follow a debt management program designed to fix the current problem and prevent future problems.