THE majority of people who take out a loan to consolidate debt go on to rack up even more credit card bills and overdraft charges, research has suggested.
A report from money-supermarket.com found 66% of consumers who take out a consolidation loan continue to build up more debt while still paying off the original loan.
More than a quarter continued to splurge on their credit cards, while 12% go into their overdraft.
A further 5% take out another loan, with 21% extending their debt through a mixture of loans, cards and overdrafts, moneysupermarket.com said.
Nearly a third of consumers taking out a loan to consolidate debt claimed they would consider consolidating again.
Despite a readiness and ability to amass more debt, 31% of consolidators said they felt either trapped by the amount they owe or that their finances were spiralling out of control.
A further 26% expect to be always in the red but feel comfortable managing the level, with just 27% confident they will be debt free at some point. Tim Moss, head of loans and debt at moneysuper-market.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.”
He added: “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 a licence to go spending again.”
According to the price comparison website, rates on personal loans have crept up over the last year as banks feel the pressure of consumers defaulting on their credit arrangements.
In February, 2006, all the top 10 loans had rates below 6% – but now there are only two, moneysupermarket.com noted.
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