Debt consolidation ‘increasingly being used to clear debt’

A growing number of people are seeking to clear debt by using equity release, a financial charity has said.

The Consumer Credit Counselling Service (CCCS) has disclosed that the typical amount homeowners have been able to obtain this way against the value of their homes in the past 12 months through its own service is £29,983.

It said this managed to help people cover typical debts run up on cards, loans and overdrafts of £29,772.

CCCS equity release manager Tom Moloney remarked: “Many clients are rightly cautious when considering equity release, but with the right advice and guidance this is an attractive solution for some – especially for those who wish to resolve their debt problems without moving home.”

But while this method may work for people who own their home outright, the situation is different for those still paying their mortgage – not least if the home loan is itself part of the debt problem due to arrears – or people who rent their home.

In such cases, other forms of help such as debt management plans or individual voluntary arrangements (IVAs) may be considered.

An IVA is designed to help those who owe £15,000 or more to deal with their severe debt through an agreement with creditors that freezes interest, reduces monthly payments and ensures no money is owed beyond a period of five years or less.

Because debt is such a problem for many, the government unveiled new plans to tackle the issue last week.

However, Citizens Advice criticised these, with chief executive Gillian Guy saying more needs to be done, with a “pressing case” for action to ensure high-cost lenders act more fairly towards their customers.

By Joe White