Debt consolidators 'fail to solve problem'

Homeowners who choose to consolidate their debts by taking out a personal loan often end up exacerbating the problem, it has been revealed.

Research conducted by money supermarket.com shows two in three people who take out a personal loan to consolidate debts end up taking another one out before they have paid off their first one in full.

As a result, one in nine people say they are unable to do anything about their debts, and one in ten say they are spiralling out of control.

"I am shocked so many people are plunging themselves into a further debt sentence via the very mechanism they've used to help re-organise their finances," Tim Moss, head of loans at moneysupermarket.com, commented.

"Debt consolidation has its place, being a good way of managing multiple debts by lowering monthly outgoings. But to succeed, those people who consolidate their debts need to be extremely disciplined and resist the urge to borrow anything further. It is the only way to break this vicious cycle of borrowing."

A more feasible way of reducing expenditure would be to shop around for the best financial products, including home insurance and home contents insurance policies.

08/10/2008 18:15:24