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News Release from: Moneysupermarket.com | Subject: Debt
Edited by the Insidemoneytalk Editorial
Team on 19 February 2007
Ever increasing debt circles
Just over 8.5 million people consolidating debt (66 per cent) take on more
More than half (57 per cent) of consolidators believe they will always have debt, but only a quarter (26 per cent) feel they can manage it 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* show more than 13 million Brits (28 per cent) have taken out a loan to consolidate some or all of their existing borrowing
This article was originally published on Insidemoneytalk on 6 Jul 2007 at 8.00am (UK)
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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.
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Commenting on the BBA's introduction of regulation for IVA providers, Tim Moss, head of debt at price comparison site moneysupermarket.com, said:
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." moneysupermarket.com analysis shows personal loan rates have crept up over the last year and the sub-six per cent rate is almost a thing of the past.
In February 2006, all of the top ten loans were less than six per cent, but now only two remain.
Changes to personal loan rates year on year 2006/2007 Personal Loan Top 10 - February 2006* Personal Loan Top 10 - February 2007* Loan Provider Rate Loan Provider Rate Moneyback Bank 5.50% Moneyback Bank 5.90% cahoot 5.60% Alliance and Leicester 5.90% Post Office 5.80% Halifax 6.10% Northern Rock 5.80% Bank of Scotland 6.10% AA 5.80% AA Personal Loan 6.20% Abbey 5.90% Barclay Loan Plus 6.30% Halifax 5.90% Direct Line 6.40% Bank of Scotland 5.90% Lloyds TSB 6.40% Co-operative Bank Internet 5.90% Northern Rock 6.50% Intelligent Finance 5.90% Sainsbury's Bank 6.50% Sourced by www.moneysupermarket.com 08.02.07 * Results taken from loans rates recorded on 6th February in 2006, but reviewed again on 8th February 2007.
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." Some additional statistics from the research: 37 per cent of 30-50 year olds have consolidated their debts compared with the 28 per cent GB average Regionally the North East (Tyne Tees area) has the greatest number of debt consolidators with 37 per cent having done so (28 per cent GB average) Those in the Midlands feel most trapped by their debt (22 per cent) compared with the 15 per cent GB average moneysupermarket.com is a website where consumers can compare the cost of personal finance products, save money and apply online.
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Visit www.moneysupermarket.com for more information.
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