Consolidation loans 'can be effective'
Published On 8 August 2007
Consolidating all existing debt with a loan can be an effective way for consumers to manage their finances, but it is important they also curb their spending, an industry expert has said.Adrian Kidd, spokesperson for Mint Financial Services, explained that consolidation can be a prudent way to manage debt as it allows consumers to protect their credit score and lets them pay off the capital of their borrowing.
He added: "At least with a loan you are given the time and you know that within five or seven years it will be gone, whereas just paying the interest every month without clearing the balance is a fairly suffocating process."
However, Mr Kidd said that it was vital that people with debts who opted for a consolidation loan should "cut their credit cards up".
He explained: "I have seen so many times people being accepted [for a consolidation loan] and saying that they are going to do this or that, and what they are not doing is paying off the capital.
"I think the biggest concern, or mistake, is that people will tell themselves that they'll chop their cards up, but in two or three years time they could well be in the same scenario. They'll never really make any progress."
A recent report from Credit Action showed that consumer debt exceeded £1.3 trillion earlier this year.
