Debt consolidation options: the cost of credit

12 September 2008

When credit is hard to come by, how do you consolidate your debts? A recent press release from comparison site uSwitch reports that the last year has seen a £283 million quarterly decrease in unsecured loans – and a £179 million quarterly increase in gross credit card spending.

With loans (including debt consolidation loans) less available than they were before the credit crunch, many people in debt have clearly felt the need to resort to different ways of keeping their finances in order, whether they’re consolidating their debts or borrowing small sums to make it through to the next payday.

The credit card approach to debt consolidation
What’s wrong with using a credit card to pay for purchases – or consolidating your debts by transferring debts to a lower-interest credit card?

“There’s nothing actually wrong with using a credit card,” said a spokesperson for DebtAdvisersDirect. “As long as you can pay it off each month, it’s a convenient way to ‘bridge the gap’ up to payday. The problems start when people end up carrying a balance over to the next month… and the next… and the next. It’s easy for that debt to escalate further and further, especially with higher-interest credit cards.”

As uSwitch reports, there are 67.3 million credit cards in circulation in the UK, with an average balance of £1,384. Clearly, there are millions of people with little chance of paying off their balance before they’ve paid significant amounts of interest on it. In other words, there may be better ways of consolidating debts…

The loan approach to debt consolidation
In most cases, debt consolidation loans don’t ‘just’ offer a lower rate of interest: they also offer a repayment method that helps the borrower stay in control of their future finances.

Working with a debt consolidation expert, borrowers can figure out how much they can afford to pay back each month, so they can repay the debt slowly enough to make sure those payments are affordable – but quickly enough to avoid excessive interest charges.

More on debt consolidation in a credit crunch.

Back to debt consolidation blog home