Debt consolidation ‘has drawbacks’

Posted 2008-02-11

Consolidating loans to cover debts is not a quick-fix solution and can land many borrowers in a worse financial situation than they started with, consumer watching Which? has warned.

The magazine noted that interest rates on consolidated loans are often higher than standard loans, which leaves many individuals struggling to meet their repayments even with the convenience of one simple monthly bill.

They also often come with set-up fees, as well as entailing higher total repayment sums and frequently being secured against a borrowers home - a fact that Which? said many consumers are unaware of.

"People often mistake consolidation loans as the quick-fix solution to their debt problems," said Phillip Inman, author of the magazines debt guide. "There is evidence people taking out these loans are not addressing the real issues behind their debt and soon slip back into poor money management - risking their homes at the same time."

Recent research by price comparison website uSwitch found that of the three million people who have consolidated their loans, a massive 65 per cent go on to accumulate further debt within one year.

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