Debt Consolidation Borrowers 'Go Further In The Red'

Millions of Britons are trapped under a “debt sentence”, it has been suggested.

In research released by moneysupermarket, some 12.7 million adults have taken out a personal loan as a means of consolidating their debts. However, even after getting such a loan two-thirds (8.4 million) will then go deeper into the red. According to the price comparison website, 28 per cent of these people go further into debt via their credit cards, while five per cent of respondents take out another loan. Meanwhile, 12 per cent have gone into their overdraft with just over a fifth (21 per cent) getting into debt due to a combination of the above borrowing techniques.

The study also showed that 26 per cent of those taking out a debt consolidation loan believe they will always owe money to creditors - however they feel comfortable that they will be able to manage their finances. Overall, 30 per cent would either consider merging their debts again or are about to do so.

Tim Moss, head of loans and debt for moneysupermarket, said: “Debt has become the common curse of modern times. People need to be careful that the ease of getting credit doesn’t catch them out. It can soon spiral into a debt sentence. Forty years ago, being in the red was a last resort. It seems many of today’s Brits are much more accustomed to taking on debt - although being able to control it is quite another thing.”

He warned that although taking out a loan as a means of consolidating debts “can be a useful way to get your finances under control”, consumers should take on such borrowing carefully and not use it as “a license to go spending again”. As a result, he advised those considering getting a personal loan to only do so to fund a specific purchase or as a “last resort” in managing debts. “With banks increasingly feeling the pressure of consumers defaulting on their credit arrangements, we can expect them to start tightening their lending criteria and pushing personal loan rates higher,” Mr Moss added.

Findings from the company also showed that 31 per cent of Britons feel that their debts are “spiralling out of control” and feel trapped by the demands they place on their finances. This compares to 13 per cent of respondents who view getting into debt as a positive move. Pointing to research by Credit Action, moneysupermarket reported that the country’s personal debt is increasing by 1 million pounds every four minutes.

Earlier this month, Edward Simpson, public affairs chief for the Finance and Leasing Association, reported that taking out a loan can help consumers “manage the peaks and troughs” of their spending. However, he advised Britons to make sure that they are always in a position to handle their debts and make repayments on personal loans and other forms of borrowing.

Although Mr Simpson claimed that the majority are able to manage their finances and make regular repayments, people often begin to struggle should they unexpectedly lose their job or get divorced.

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Tom Dawson writes for Essentially Home Loans where visitors can apply for secured loans online, we also specialise in bad credit loans for UK residents. Visit Today: http://www.essentiallyhomeloans.co.uk

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