Brits are continuing to borrow despite having consolidated their debts

Research recently undertaken my moneysupermarket.com found that 13 million Brits had recently chose to consolidate their debt with a personal loan. However, of these, 8.5 million then elected to continue borrowing on the credit cards and overdraft facilities they had just consolidated with the personal loan.

With such a high proportion of Brits continuing to borrow money even after they have consolidated their debt into a personal loan, Tim Moss, head of loans and debt at moneysupermarket.com, is warning UK consumers that they need to fully understand the virtues of consolidating a debt if they are to make the most from this.

Moss stated that: "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 licence to go spending again."

In a related survey, Money Expert found that nearly a third of Brits who had elected to consolidate their debts once would consider doing so again as a result of having, once again, over spent on their credit cards and overdraft facilities. Indeed, Money Expert's findings found that 26 percent of Brits felt they would forever be in debt, but felt they were comfortable managing the level of debt they had. Only 27 percent of Brits felt the time would come when they would be completely free of debt.

Commenting on the growing trend of borrowers who consolidate debt and then re-borrow, Sean Garden, chief executive at Money Expert, said: "Consolidating your debt into one monthly payment is a good idea – but you’ve got to be disciplined. The truth is that too many of us are just looking for quick fixes and not thinking long-term. The theory behind consolidating debts is that you borrow at as low a rate as possible to pay off all your debts from overdrafts, credit cards and other loans. That should cut the amount you repay each month and enable you to plan to be debt-free. It should also be a wake-up call to stop borrowing. We'd urge borrowers to think long-term and think big. If you are consolidating then ensure you pay off all debts and have a monthly budget for spending with space for emergencies that you stick to."

Meanwhile, Sainsbury's Bank estimates that 433,800 personal loans, worth an estimated £4.8 billion, will be taken out between January and March this year by Brits eager to consolidate the debts they created over the Christmas and New Year holiday period.

Richard Smith
19.02.07

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