According to a recent survey conducted on behalf of OceanFinance.co.uk, 29% of people with multiple unsecured debts (such as credit cards, overdrafts and loans) plan to consolidate them by October.
Consolidation is one of the ways people can potentially make their unsecured debts easier to manage.
By taking out one loan with a longer term and lower interest rate than they are currently on, they can pay off several smaller, higher-interest unsecured debts and pay back the large loan in single monthly sums, which may be more manageable for their budgets.
There are several ways people can choose to consolidate their debts, but the most popular – according to the survey – is by using either a secured or unsecured personal loan. Two-fifths (40%) of people who are planning to consolidate their debts in the next five months said they hoped to do it with a personal loan.
More than a third (36%) of borrowers interested in consolidating, meanwhile, said they planned to do this using a credit card with a low-interest rate. And a quarter (24%) revealed they were thinking of remortgaging in order to raise the funds they need to consolidate their smaller debts.
Men were more likely than women to be considering consolidation as a way of managing their debts in the next few months. A third (35%) of men with debts revealed they were thinking about consolidating them, compared to a quarter (23%) of women with debts.
Remortgaging was most popular among those aged between 25 and 34 years old (12%), despite this being the age group that is most likely to be taking its first steps on the property ladder. In contrast, none of the respondents aged over 55 who took part in the survey said they had plans to remortgage.
Ian Williams of Ocean Finance said: “When you have lots of small unsecured borrowings - perhaps with high interest rates - eating a hole in your monthly budget, consolidation may be a suitable solution.
“By remortgaging, using a low interest rate credit card or a secured or unsecured loan, you might be able to raise the funds you need at a lower rate of interest than you’re currently paying, so you can clear your unsecured debts in one go.
“While paying just one – ideally lower - monthly payment can relieve the immediate financial pressure, it’s important to remember that you may well end up repaying more over the long term.
“It is also worth remembering that converting unsecured borrowing into secured borrowings can put your home at risk if you fail to maintain the payments.
“The final important factor in successful debt consolidation is making sure that you don’t run up new debt, perhaps by using the credit cards or overdraft you’ve just paid off.”