Friday, March 13, 2009
Category:
Consolidation
According to recent news from USwitch, UK consumers are forking out around £98 billion in interest on their personal debts.
In 2008, over a million loans were paid out for consolidation purposes. However fewer than one in four borrowers shut existing forms of credit and 85% say that their provider did not ask them to do this.
Of those who chose not to close down existing debts, 26 per cent stacked up a further £2,221 in addition to the new loan they had taken out. This equates to a further £744 million worth of debt. According to USwitch, the UK economy is currently struggling with £1.45 trillion debts and consumers should focus on reducing their borrowing in the most economical way in 2009. According to the research, borrowers are currently paying out £98 billion per year in interest. Research has also shown that consumers could save themselves £20 billion by consolidating all their unsecured debts including credit cards and unsecured loans another lower cost form of credit such as a loan or credit card.
It is recommended that consumers wishing to consolidate debts must be very disciplined about it in order to avoid a vicious debt cycle. The research conducted by uSwitch has shown that less than 23 per cent of borrowers shut down existing accounts which could have been cleared by a consolidation loan.
Louise Bond, personal finance manager at uSwitch.com comments: "As we embark on what is expected to be one of the toughest years in the history of the UK, it is vital that borrowers give themselves the best possible chance of servicing their debt in the most economical and manageable way possible. If consumers are careful about managing their spending, a debt consolidation loan can help to reduce monthly repayments, and it can also help to settle borrowings earlier as the repayments are fixed and set for an agreed number of years.
"Borrowers need to be aware that taking out a loan or credit cards to consolidate debts must be approached in a disciplined way and should not be treated as a quick-fix solution to debt problems. Those who consolidate their debt into a single loan should only borrow enough to cover all their debts and no more, and all existing debts must be closed down immediately. The purpose of a consolidation loan is to reduce debts - consumers should not be tempted to fall into the trap of racking up these debts again as they could end up finding themselves in a vicious debt-cycle."
............................................................................................................
Homeowners who are thinking of consolidating existing debts could consider doing so with a secured debt consolidation loan. One of many options to consolidate existing debts, a secured debt consolidation loan may be used to settle existing debts including credit and store cards, personal loans and debt incurred via hire purchase. When using a further form of borrowing to
consolidate existing debt, borrowers should consider closing existing debt accounts in order to prevent increased levels of debt. It is also important to remember that consolidating debt may increase the amount paid back overall and extend the repayment period of debts.
