06 February 2008
Sweeping debts into one consolidated loan* could be the start of serious financial problems, rather than the end, says Managing Your Debt, a Which? essential guide.
Consolidation loan companies often charge set-up fees that are added to the cost of the loan, resulting in a higher debt than was originally owed. Interest rates are often very high, so as a result, people could be paying back almost double the original loan amount.
There can be extortionate charges for redeeming consolidation loans early, and many consolidation loans are secured against the borrower’s home, putting it at risk if they are unable to make the repayments. Despite this, many borrowers are not aware of that they could lose their home if they fail to keep up with repayments, even when there are prominent labels on the adverts, says Managing your Debt.
Phillip Inman, author of Managing Your Debt says:
“People often mistake consolidation loans as the “quick fix” solution to their debt problems. They are sold as a method of paying back debt in one easy payment each month. However, people choosing this option tend to pay back much more than they originally owed.
“On top of this, there is evidence that 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.”
“Anyone considering taking out a consolidation loan should first look at why they are in debt, and take steps to sort this out, rather than rushing to take out a high cost, high risk loan.”
-Ends-
* A consolidation loan is the term used for a loan that allows you to put existing borrowing into a single loan.
Managing Your Debt, a Which? essential guide can be ordered on 01903 828557 (£10.99, p&p free) or at www.which.co.uk or bought from bookshops.
Phillip Inman has been a journalist for 18 years specialising in personal finance and business. For the last nine years he has worked for The Guardian newspaper and has written extensively about unfair practices in the financial services industry and the nation’s growing problem with debt.
Managing Your Debt, a Which? essential guide gives clear and practical advice on everything relating to debt, from credit and store cards to students loans and bankruptcy.
