Unsecured Loans Popular for Consolidating Debts

by : bernard john

According to a recent research, nearly 6 million people in the UK are availing personal loans to consolidate their debts. The study also indicates that most people prefer to use unsecured loans to consolidate their debts, as the interest rates of these loans are normally lower than the interest rates of payment cards like credit cards and store cards.

However, most loan seekers apply for a much higher amount and the extra money is generally used to maintain a higher lifestyle. Another research by a leading price comparison site revealed that most people – who avail consolidation loans – continue to use their credit cards and store cards to create further debt.

Industry experts say that this type of borrowing is not true debt consolidation, but an attempt to dodge the rules and borrow more money than one can afford to repay. They added that the purpose of true debt consolidation is to clear up the debts in a relatively short time.

It should follow a debt management program designed to fix the current problem and prevent future problems.

The preferred method of debt consolidation in the UK is where multiple unsecured debts are combined into a single loan with a lower monthly payment. While this is a positive short-term move, it can be fiscally devastating over the long-term if done in the wrong way.

According to Sean Gardner, chief executive of Money Expert, “Debt consolidation is entirely sensible and a good way to get your finances under control if you owe money to different lenders at varying rates of interest.” However, he believes that that this is a “wake up call” for the UK consumers whose finances are out of control.

Confirming Sean Gardner’s view, Nick White, director of personal finance at uSwitch.com, said that the UK consumers should not view debt consolidation as a “quick fix” to their financial problems.