Gain control of your finances with debt consolidation
03/07/2007
As anyone who has outstanding loans could tell you, it is a difficult time to be a borrower in Britain. The average household debt in the country is £8,816, which rises to £54,771 when mortgage debt is included, according to figures from Credit Action.
Meanwhile, two base rate hikes so far this year have pinched consumers` finances, while experts widely believe that at least one more is on the horizon in order to help curb inflation.
As the UK continues its struggle to get its borrowing under control, many people have looked for ways to better organise their repayments - such as consolidating their debts.
Sean Gardner, chief executive of MoneyExpert.com, called debt consolidation "entirely sensible and good way to get your finances under control", as consumers begin "to feel the strain" of high interest rates.
"Theoretically you can reduce your monthly repayments and make your debts manageable," he explained.
Indeed, debt consolidation can have many benefits for people who have high levels of debts. In addition to helping borrowers manage their payments, they may also be able to negotiate a lower interest rate, while avoiding damaging their credit rating.
David Kuo, head of personal finance at Fool.co.uk, echoed Mr Gardner`s sentiments, saying: "Consolidation loans can be a welcome lifeline for people caught in financial difficulties."
Many people are catching on to the advantages of this method of managing finances. Recent research from MoneyExpert.com reveals that six million Britons have chosen debt consolidation in the past three years, a figure which equates to one in seven UK adults.
Different types of debt consolidation are on offer for those who choose it; the study indicates that 36 per cent chose an unsecured loan, 18 per cent remortgaged and 15 per cent put their debts on a credit card with a zero per cent interest rate.
In fact, figures from Alliance & Leicester indicate that debt consolidation is the second most popular reason for taking out a personal loan - after buying a vehicle.
However, although they may have their advantages, it is important to remember that consolidation loans are still just that - loans. They are intended to help people pay off their debts, not accumulate new ones.
A study by Fool.co.uk revealed that three out of five borrowers who have taken out consolidation loans go on to run up further debts. Compared with these numbers, one in four succeed in clearing their debts early - and those people were more likely to avoid accruing further debts.
With these numbers in mind, Mr Kuo added that choosing loans carefully is important; some carry penalties for early settlement, which does not encourage debtors to pay off their loans early.
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