Ever increasing debt circles

The majority of people who take out a loan to consolidate debt then take on more debt and struggle with the consequences.

Research commissioned by price comparison website moneysupermarket.com reveals more than 13 million Brits (28 per cent) have taken out a loan to consolidate some or all of their existing borrowing.

However, the statistics also reveal a worrying trend - of those who took out a personal loan to merge their existing debt, just over 8.5 million people (66 per cent) continued to build up even more on their credit card (28 per cent), by going into their overdraft (12 per cent), by taking out another loan (5 per cent), or by a mixture of the above (21 per cent) while still paying off the original loan. Nearly a third (30 per cent) claimed they would consider consolidating again or are about to do so.

Despite the readiness and ability to amass more debt, nearly a third (31 per cent) of existing debt consolidators feel either trapped by debt or that it is spiralling out of control. However, 13 per cent of consolidators felt this was a positive step to getting their debt under control.

The research from moneysupermarket.com highlights how consumer debt has become a necessary evil in many people’s lives. Just over a quarter (26 per cent) of consolidators expect they will always be in the red – but add they feel comfortable managing it – and 27 per cent actually feel confident they will become debt-free at some point in time.

Tim Moss, head of loans and debt at moneysupermarket.com, said: “Debt has certainly become the common curse of modern times. Whereas 40 years ago being in the red was considered a last resort, it seems many of today’s Brits are much more accustomed to taking on debt – although actually being able to control it is another thing.

“People need to be careful that the ease of getting credit does not catch them out. Taking a personal loan to consolidate debts can be a useful way for people to get their finances under control but a loan for these purposes should be considered carefully and only regarded as a measure for becoming debt-free - not as a license to go spending again.

“As we see banks increasingly feel the pressure of consumers defaulting on their credit arrangements we can expect them to begin tightening their lending criteria and pushing personal loan rates up higher.”

Tim added: “It’s in consumers’ best interests to realise the important implications of taking on debt and only consider a loan for a specific purchase – like a car – or as a ‘last resort’ to start managing their debt. People who feel trapped by their debt, or feel it is out of control, should in the first instance seek debt advice from one of the free advice agencies such as the Citizens Advice Bureau.”