Following years of cheap and easy credit, we are now experiencing an ever-deepening recession, and, as a result, many people are struggling to pay off unprecedented amounts of debt, with some barely affording to meet the minimum payments. The disatvantage with this is that the lowest required payment only covers the monthly interest on a debt, meaning the actual balance only decreases by one or two pounds a month.

Therefore it takes years to pay off the actual balance and a substantial amount of interest is paid over the term.

Debt consolidation is often a good solution for such people: in simple terms, a debt consolidation loan is used to clear all your debts and you pay this loan off with one manageable monthly repayment. The quick guide below provides further information about debt help:

• Unsecured Personal Loan: These are available over various terms (1-7 years) and at several rates of interest (some debts, such as store cards, hire purchase and credit cards carry high interest rates). No security is required but an exemplary credit record is needed; lending criteria have been tightened as a consequence of the credit crunch.

Various amounts can be borrowed, usually from £1,000-£25,000, and with each payment made the balance goes down. If you use this method of borrowing to pay off debts you must be disciplined and ensure you do not run debts up again (it would be a good idea to cut up store cards/credit cards).

• A Secured Loan: some debt consolidation loans are secured, which means that the debt is secured to a homeowner’s property and, if the homeowner defaults on the loan, the property may be seized. This type of loan may be the only option available to homeowners with poor credit histories, and also a good solution for those who wish to borrow large amounts (up to £50,000 or more), or those who require a longer repayment period (up to 25 years).

Do not forget that this debt is secured on your property and your home may be repossessed if you do not keep up with repayments.

Used responsibly, both the secured and unsecured personal loans can save you a substantial amount of money in interest and can develope your credit rating (providing payments are adhered to).

If you wish to take out a loan, do your research by online comparison sites to find the best rates and deals before signing on the dotted line. Obviously, you will need to have an adequate regular salary in the form of employment to take out a loan.

Louise Bond, personal finance manager at uSwitch.com comments:

“As we embark on what is expected to be one of the toughest years in the history of the UK, it is vital that borrowers give themselves the best possible chance of servicing their debt in the most economical and manageable way possible.

If consumers are careful about managing their spending, a debt consolidation loan can help to reduce monthly repayments and it can also help to settle borrowings earlier, as repayments are fixed and set for an agreed number of years.

Borrowers need to be aware that taking out a loan or credit cards to consolidate debts must be approached in a disciplined way and should not be treated as a quick-fix solution to debt problems.

Those who consolidate their debt into a single loan should only borrow enough to cover all their debts and no more, and all existing debts must be closed down immediately.  The purpose of a consolidation loan is to reduce debts – consumers should not be tempted to fall into the trap of racking up these debts again as they could end up finding themselves in a vicious debt cycle.”

If you have debts and lose your job, you need to take action quickly. Visit a debt advice agency such as the Citizens’ Advice Bureau. They will be able to advise you accordingly. They will work out a debt management plan for you and negotiate with any creditors on your behalf. Repayments will be based on your ability to pay and any interest will be frozen, meaning a big weight off your mind. Monthly payments for those who have limited income can be as little as £1.

If you are having difficulties with debt, always seek the help of a specialist agency (such as National Debtline) as soon as possible.

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