While the main reason for debt consolidation is to achieve a lower interest rate, there are all manner of other types of benefits as well. By having less loans outstanding, you can improve your credit rate almost immediately. In addition, you will save a lot of hassle and headache having fewer loans to keep track of and pay for. With debt consolidation loans, you can save all manner of hassle and difficulty as well as trim back the amount of money being spent on interest rates in general.

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“Many of the insolvency practitioners we speak to on a daily basis are saying that despite putting forward their clients’ best offers which comply with this year’s new IVA protocol, a growing number of creditors are asking for more modifications, which are impossible for the debtor to manage,” says Balfour.

“As a result, the only choice left for many people is the less restrictive option of a Debt Management Plan which doesn’t need to be approved by the courts and is quicker and easier to achieve.”

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Senior economist at the Royal Institution of Chartered Surveyors (RICS), Oliver Gilmartin said, “The recent improvement in the monthly gross lending could offer some encouragement in what are typically slower months. Lending still remains 27 per cent down on a year ago levels and access to mortgages remains challenging. While banks are still in the process of repairing their balance sheets and as the securitisation markets remain effectively closed, mortgage lending is unlikely to recover in any meaningful way.”

Bob Pannell from the CML added, “While there was a small month-on-month increase in activity, it represented a notable decline from a year ago. This continues the weaker picture seen in June and points towards the more subdued levels of lending we are likely to see in the second half of 2008.”

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Britannia Group chief executive Neville Richardson says: ‘We said at the start of the year that 2008 would be a year of consolidation, rather than growth. But we are weathering this storm and will come out stronger.

‘We’re not immune to the market downturn, and our business model anticipated losses arising from some of our lending. The slowdown in the wider economy means we believe those losses may come about more quickly than expected, but we’re taking the necessary action to contain them.”

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A company spokesperson for Gregory Pennington, a debt management company said: “It’s now very possible that we will see the knock-on effects of the weak housing market combined with rising costs of living – higher unemployment, increasing amounts of people struggling to meet their comments, and more people facing problems with debt. Even if it does get to that stage, there are still things you can do. Seeking professional debt advice from an expert debt adviser is essential if you find yourself in financial difficulty.

“There are a range of debt solutions available to meet different situations, including debt management plans, IVAs (Individual Voluntary Arrangements), debt consolidation loans and remortgages, etc. One of these could be a lifeline if you find yourself with unmanageable debt, which is a growing threat in the current economic climate.”

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“As the current economic downturn continues, the demand for secured loans by second charge remains.” commented Michelle Slade, analyst at Moneyfacts.co.uk. “Secured loans offer consumers the option to consolidate their debts over longer terms of up to 25 years, whereas unsecured loans only offer up to a maximum term of 10 years with seven years being the norm. This is appealing to those who wish to reduce their existing outgoings by as much as possible.”

She continued, “If a consumer’s home is repossessed, it is likely to be sold at a lower level than market value and once the first charge mortgage is repaid and legal fees etc are deducted, there is likely to be little left for the secured loan lender to recoup the debt owed to them.”

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Francis Ghiloni, business development director of the mortgage advice website Mform.co.uk said: ‘Borrowers should do as much as possible to make their mortgage payments affordable. It is far better to do something such as extending the mortgage term or even moving part of the loan to an interest-only basis than just putting your head in the sand and hoping for the best.

‘That’s the way to end up getting repossessed or being forced to sell your house and trade down. As long as the mortgage is not being extended so that you’re still repaying it when you should be retired it can be a sensible way to ride out the current storms.’

Francis Ghiloni at mform.co.uk, said: “Borrowers can be forgiven for thinking that there should be a fixed cost for a valuation which is standard across the industry. It’s the same house after all. However, lenders are being squeezed in the credit crunch and are using fees - and increasingly a variety of fees - to maintain margins. Some charge arrangement fees and while others charge valuation fees and valuation administration fees, others charge no fees.”

‘If you believe rates are going to rocket up in the foreseeable future then there will clearly be some merit in taking a fixed rate,’ says Drew Wotherspoon of John Charcol. ‘I do not believe that this is the future direction for rates, quite the opposite in fact.’ He is recommending trackers as they are generally 0.5% better than fixed rates.

Michelle Slade, from Moneyfacts.co.uk, states: “Most credit cards levy a foreign usage charge, some as much as three per cent for both purchases and cash transactions. Not only is the interest rate far higher than on purchases, but you will be charged the interest from day one. On top of this, you pay a cash handling fee as well as the foreign usage charge.”

Consumers may not have much of a choice however, as rates continue to go up. “With rates on fixed rate bonds continuing to increase, for the first time in many years we have seen all of the top six Moneyfacts.co.uk best buy places being taken up by rates of over 7%.” said Rachel Thrussell, head of savings at Moneyfacts.co.uk.

A spokesperson for Moneyfacts said: “Many borrowers prefer fixed-rate deals, particularly in today’s economic climate as they struggle to keep outgoings under control. However, many are likely to find this increased cost too much to bear.”

Matthew Carter, a director at Nationwide, said: “While markets remain volatile, we can expect to see frequent changes to fixed-rate mortgages across the industry.”