Brits Reliant on Loans for Debt Consolidation

By: Andrew Regan

According to debt management charity CreditAction, UK debt levels stood at the staggering level of ?1345 billion at the end of June 2007 - a growth rate of 10.2% on the previous year. As a result, it's been estimated that personal debt is increasing by ?1 million every four minutes. Although this total debt figure takes into account credit card lending, overdrafts and refinance deals, personal loan spending is a large part of these statistics as well and, as a recent survey by Fool.co.uk shows, many people in Britain are becoming increasingly reliant on loans in their everyday lives.

With 7716 loan repayments going unpaid each day, there seems to be a growing personal loan epidemic in the UK - one which so far shows no signs of stopping. The recent research carried out by Fool claims that 39 per cent of consumers decide to take out loans for debt consolidation needs: essentially, this means getting into more debt to pay off other debts and credit card bills. The survey's results show that many UK consumers will not hesitate to take out a personal loan to resolve their financial debts, rather than trying to save their existing income.

Moreover, three in seven borrowers admitted that they'd consider taking out another personal loan in addition to the finance they already possessed. However, David Kuo, head of personal finance at Fool, stated that this method isn't really a sustainable solution to debt consolidation, and can even make an individual's financial situation worse in the long term. Kuo commented:

"It is always a good idea to consider alternatives before taking out a loan. If you have some savings, then dipping into your nest egg is likely to cost less than borrowing money, even if it is a low-cost loan. Additionally, delaying your purchase and putting away some spare cash is bound to work out cheaper in the long-run.

Borrowing money may seem like a convenient way to plug a hole in your spending plans, but a hole in your budget may be a sign of deeper problems that can often be solved, not by increasing net borrowing but by cutting gross spending."

The process of obtaining a personal bank loan has become much easier today, as many banks and building societies allow consumers to apply for personal finance online. Additionally, many financial providers specialise in debt consolidation loans, hence making the prospect of taking out another loan to pay off existing debt much more attractive.

Yet, it's crucial to remember that debt consolidation loans are only a short-term solution to the increasingly prevalent blight of debt. Ultimately, a reliance on debt consolidation loans to pay off existing debts could mean that you'll spiral into even further debt - a situation which could be extremely difficult to claw your way out of. Instead, before taking out a personal loan, attempt to come up with a basic payment strategy on the basis of your existing income. That way, you'll always be able to keep track of your levels of debt and you'll find it easier to stay on top of your finances.

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