Three in four people struggling with debt repayments

New research from Compare the Market has revealed that almost three-quarters of people with multiple forms of debt (72%) say they find it difficult to stay on top of their repayments.

On average, people in the UK with multiple debts owe £7,296 in total and have been paying them off simultaneously for nearly three and a half years. Credit card debt is the most held type (87%), followed by personal loans (60%), overdrafts (58%), store cards (36%), and payday loans (23%).

While the difficulties associated with repaying numerous debts simultaneously are clear, over one in five people with multiple debts (21%) have not heard of debt consolidation loans, which can help to simplify the process of repaying multiple debts by combining debts from different providers into one loan from a single provider.

This highlights a notable lack of awareness of debt consolidation loans, which could help people with multiple debts to more easily manage their repayments. Indeed, just over four out of five people who have not heard of debt consolidation loans (82%) say they would find it easier to stay on top of their debts if they were combined into one monthly payment.

Among those who are aware of debt consolidation loans, more than a quarter (26%) have previously taken one out while over one in three (36%) say they are considering one. The largest proportion of this group are doing so to pay off their debts faster (56%) while nearly half say it is to have fewer debts to manage (49%).

Yet, also among people who have heard of debt consolidation loans, over one in three (37%) have never considered taking one out. The largest proportion of this group (41%) say this is because they do not want to take on new debt, while others say they do not understand how debt consolidation loans work (17%), cannot afford the upfront fees (13%), or suspect they would not qualify due to bad credit (12%).

The attitudes of both groups also underline some of the complexities associated with debt consolidation loans. For example, four in ten people who have previously taken out a debt consolidation loan or are considering one say it is to improve their credit score (40%), but one in four people who have never considered one say it is because they are concerned it would negatively impact their credit score (25%). Both reasons are in fact valid, with debt consolidation loans potentially presenting a way to improve your credit score but only if you can make the regular payments.

In addition, nearly half of people who are considering or have previously taken out a debt consolidation loan are doing so because it would allow them to pay a lower interest rate on their debt (46%). While a debt consolidation loan could offer a lower interest rate than your current debts, the rate you are offered could be higher depending on the provider’s lending criteria and your credit history. Meanwhile, almost a quarter of people who have never considered a debt consolidation loan (24%) say this is because it would cost them more overall. While this could be the case if you extend the length of your loan, taking out a debt consolidation loan could also mean you pay less overall if you get a loan with a lower rate.

Charlie Evans, Money Expert at Compare the Market, said “With nearly three-quarters of people with multiple debts struggling to manage their repayments, our research highlights the real burden that juggling various forms of credit places on individuals across the UK. It’s worrying that many are unaware of tools like debt consolidation loans, which could help to simplify their finances and potentially reduce their overall interest costs if the new rate is lower.”