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MONEY COMMENT
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A new survey from the market analyst, Datamonitor, has revealed that more and more people are using home loans to consolidate their debts. More than 700,000 secured loans were advanced in 2002, each with an average value of more than £20,000. Debt consolidation accounted for 60% of all advances. I find that quite shocking. I can understand why people might borrow against the equity in their homes to pay for home improvements – that's an investment. At a push I can even understand why people might increase their mortgages in order to pay for something fairly expensive such as a car, not least because mortgage rates are usually the cheapest on the market. But to exchange one lot of credit card and personal loan debts for one that is actually secured against one's home seems a bit illogical unless there really is no other way out. After all, if you've got a problem keeping up with your payments on the original debts, then why do you think you're going to be able to keep up with the new one – and one that threatens the roof over your head. Admittedly, since secured loans are generally repaid over a longer period, your outgoings may be less each month but overall the loan will cost more in the long-term. The other curious thing is that the secured loan market is dominated by a number of high profile credit brokers such as Ocean Finance, Freedom Finance and Norton Finance. None of them offer secured loans that are as cheap as a mortgage. But then, according to Datamonitor they spent more than £41 million on advertising last year compared to less than £2 million only four years earlier so it's no wonder they've cornered the market. So, not only are people consolidating their debts against their home but they're also borrowing from more expensive lenders. It would surely be cheaper to remortgage with your own lender with a flexible loan that you can overpay over a shorter period of time. Even better would be to go for a personal loan that is not secured against the roof over your head or to transfer the debts to credit cards that offer a 0% deal. More on: Personal Loans | Credit Cards