Consolidation loans 'can lead to more debt'

More than half of borrowers who take out a consolidation loan to escape debt end up owing more, a website has claimed.

The survey carried out by Fool.co.uk shows that three out of five people who turn to consolidation loans go on to accumulate more debts.

Consolidation loans can be a way of rolling together other debts into one manageable monthly repayment, sometimes allowing borrowers to pay off expensive debts in favour of a relatively cheaper one.

Respondents revealed that an average consolidation loan is £16,459 and takes eight years to pay off. However, most people do not repay their consolidation loan early, even when given the chance to.

David Kuo, head of personal finance at Fool.co.uk, said: "Consolidation loans can be a welcome lifeline for people caught in financial difficulties. But the lifeline can quickly turn into a noose if you submit to the temptation of running up further debts."

He added that using one to minimise repayments could be a good idea. Another option he mentioned was paying off the highest interest debt first.

He said it was a good idea to ask for a flexible fixed rate loan that will not be subject to the fluctuations of the market.