Consolidation loans a high priority for borrowers

26/05/2009

Debt consolidation loans remain popular in the credit crunch, Halifax has said.

Latest data from the lender show that a total of 54 per cent of its loan applicants over the past year wanted to use the money to pay off other debts and simplify their finances in this way.

The reason why people use "consolidation" loans is to clear debts with higher rates of interest in order to reduce their monthly outgoings.

For example, £3,000 of debts on various cards carrying an average rate of 15 per cent can be replaced by a personal loan for the same amount carrying a rate of ten per cent.

However, low rates on loans are only accessible to people who have good credit records.

Halifax also said in its research that people used loan money to build skills for a new career - while some other successful applicants got the loans to buy new false teeth and even a mobile disco.

Commenting on the new research, Kevin Still at EuroDebt said: "Debt consolidation to re-schedule a number of debts into a single more affordable monthly repayment can seem like an obvious debt solution; however, over two thirds of people that do this end up in more debt because they lack the discipline to clear the existing debts and continue to use the credit cards where they have created credit capacity on these accounts.

"EuroDebt's experience is that many clients come to us for a debt solution where a year ago they had only a fraction of the unsecured debt they are confronted with today. Moving from a manageable to an unmanageable debt position is an everyday occurrence and only the most disciplined can deal with the pressures without professional help."

Tags; Debt Management and Banking, Credit Card Lifestyle,

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