Six million consolidate to improve finances

More than six million people have used debt consolidation in the past three years in an effort to control their borrowing, says new research from MoneyExpert.com. The price comparison site has found that one in seven adults have used unsecured personal loans in an effort to improve their finances. The research shows that the UK is in a debt crisis, with many struggling to get a grip on their finances. The price comparison site warns that the situations is likely to worsen, with borrowers feeling the pinch more as interest rates rise.

The average personal loan for consolidation is around £13,000 and some six per cent of those who have consolidated their debts in the past three years have borrowed more than £50,000. Even at the lowest unsecured personal loan rate, the repayments on a £13,000 personal loan would be £393.99 a month, while anyone who wanted to borrow £50,000 would need a secured loan or a remortgage deal.

Apart from unsecured personal loans, there are also those who take out secured loans against their homes or increase their mortgage to consolidate their debts. This carries the risk that if they default they could lose their homes.  Sean Gardner, Chief Executive of MoneyExpert.com, said: ‘The UK’s debt crisis is a serious concern and borrowers are starting to feel the strain.’

He warned that debt consolidation should be a wake up call to get borrowing under control and work towards being debt free. Many people may see consolidation as a way of continuing to borrow.

Some people consolidate with credit cards, though these people are likely to face the biggest bills as the average credit card rate is about 15.9 per cent. The lowest rates are on unsecured loans, though secured loans can be competitive. However, unsecured loans are for a shorter term, which means less interest. In contrast, adding £13,000 to a mortgage might result in low interest payments, but over the term of a mortgage, repayments would total £20,860.