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If you are looking into borrowing money that is less than £5,000, there are cost effective ways of borrowing money other than a personal loan.  Depending on your circumstances and requirements, you will want to consider just how much you really need to borrow and how long of a period you wish to pay it off.  If you search and compare the alternatives to a personal loan, you will benefit greatly.

One such alternative to a personal loan is a credit card.  If you plan to borrow a few thousand pounds over a short-term, then a credit card may be a better choice for you.  By finding a card that offers 0% interest rate on purchases for six to twelve months you will benefit greatly from the card.  However, if it is cash that you wish to use then a credit card will not be a good option, as the interest rate on cash advances are extremely high putting you at risk of falling into debt.  When you use a credit card for a large purchase, you will want to ensure that you will be disciplined enough to make the monthly payments.  Also when you repay the debt on your credit card you want to make large payments to help reduce the debt, especially if the card is charging you an interest rate.

A bank overdraft is another alternative to a personal loan.  A bank overdraft is best used for short-term borrowing.  Banks and building societies tend to charge high interest rates on overdrafts, but if you plan to repay the amount borrowed within a short time then you can benefit from a bank overdraft.  When you are looking into a bank overdraft you will want to compare the interest rates that are charged by the banks.  You also want to ensure that there is no annual fee or monthly charges.

Debt Free Direct chairman Mike Blackburn, former chief executive of the Halifax, blames the increase in personal insolvencies on the banks.

“We are where we are because of excessive and imprudent lending decisions made by creditors, who end up with debtors strung up with debt they would never be able to deal with,” he said. “Why have the banks been squealing of late over their provisioning? Debtors are having credit thrown at them.”

The total number of personal insolvencies jumped in 2006, at least 45% to 67,584 cases. Debt Free Direct (DFD) estimates that 1m to 2m people are irreversibly over-indebted and will never be able to repay the capital on their loans.

The banks made £37bn in profit in 2006.  The banks have been criticised by several debt management charities for their careless lending.  Banks are deflecting the blame on individual voluntary arrangement (IVA) firms.

The banks claim that debt-management firms are selling unnecessary IVAs to consumers who do not need their services. The number of IVAs taken out last year increased from about 20,000 to 45,000 and their value increased from 15% to 30%.

HSBC raised the issue after its six months bad debt provisions increased in 2006 from £265m to £361m.

Recent reports suggest that banks are acting irresponsibly by releasing figures which states that teens are in serious debt because credit card companies have been lending unsecured loans to high school students.

Other reports have brought to light the fact that banks are issuing loans without asking clients for proof of income or referencing their consumer credit information.

If the Office of Fair Trading’s objectives are realized, and the banks lose a test case, they will “forfeit this multi-billion pound source of illegal profit forever” if consumers start to challenge them in the courts.

Now, many consumers are frustrated by the bank’s refusal to make repayments, in some cases even when the courts side with consumers and demand a refund.  According to some claims, this is the biggest illegal money grab in the UK.

Matthew Taylor, Speaking in a debate in parliament’s Westminster Hall, claims that the banks do not fight any refund cases, preventing a definitive ruling on whether the charges are illegal.  If they did fight a case, and the charges were deemed illegal, they will loose almost £4.5 billion in charges annually.

Mr. Taylor said:

“Every time court action is threatened, the banks refuse to defend themselves. The only possible reason has been that they know they will lose.”

He claimed, in his speech, that Banks are “mugging their customers and the OFT and the government are letting them get away with it”.

Concluding he added: “These penalty charges are crippling people on very low income.

“I believe they are clearly illegal and if there was any doubt about it the banks would have the courage to fight a single case in the courts - which they do not.

“Meanwhile, frankly the OFT has been limp, the banks are dodging the courts and the government is turning a blind eye.”

The OFT and some members of the financial community are encouraging consumers to fight for their money.  This money has bee appropriated illegally, through underhanded methods that break government regulations.

Liberal Democrat social exclusion spokesman Matthew Taylor claims that penalties imposed for bouncing cheques and direct debit payments over the taking accounts past their overdraft limit earned the six High Street banks £4.5 billion in 2006.

Mr Taylor addressed Westminster Hall in debate. He said:  “This is a major contributor to the UK debt crisis and to social exclusion.

After a movement by the Office of Fair Trading (OFT) last year, many people are fighting the banks. In most cases the banks backed down when threatened with court action.

“Most importantly of all, these bank penalty charges are more than inconvenient, more than unfair, they are illegal.”

“For all other items, the absolute maximum in this electronic age where it’s all done automatically through computer is £2.50.”

This is a case of UK banks profiteering from the current debt problems.  Currently,  the law allows banks to impose a penalty to cover the administrative costs incurred by bounced cheques, exceeding the overdraft limits, or the rejection of a direct-debit payment.

While the current fee averages £30, Mr Taylor believes “The absolute maximum it costs the bank in these cases is £4.50 for a bounced cheque.

With the government investing millions into solving the debt problem, it is only a matter of time before the OFT addresses this problem. Until then, consumers who are paying exorbitant fees are reminded that they are entitled to a refund, but they must initiate the action, the banks will not give up the money willingly.

Mr Taylor added: “They know it’s an illegal rip-off of trusting and often impoverished customers.

“They are mugging their customers and the Office of Fair Trading and the Government are letting them get away with it.”

Average owed by every UK adult is £27,180 (including mortgages). This grew by £210 last month.  This number is a statistical number that has no bearing on the average consumer’s ability to repay their mortgages.

These debt levels have increased the average interest paid by each household in the UK, on their total debt, to approximately £3,327 each year.  The interest rate is this high, because of the UK consumer’s dependence on credit cards and high interest unsecured loans.  The average consumer borrowing on credit cards, motor and retail finance, overdrafts, and unsecured personal loans rose to £4,511 per average UK adult at the end of November 2006.

This is why consumers are encouraged to calm down. Recent panic ads on television and in shopping malls have caused some consumers to embark on high risk debt management programs that have put them, and their homes, in peril.

UK consumers who accepted store cards to pad their Christmas spending at exorbitant rates have pushed the inflation rate up, forcing the Bank of England to consider a third interest rate hike this February.

Research from Alliance & Leicester Personal Loans revealed that a staggering 23 per cent of people used store cards to finance Christmas spending. Half of these use store cards because they are offered at the point of purchase. This type of impulse buying is detrimental to any debt management program.

Grant Thornton estimates approximately 30,000 personal insolvencies in the first quarter of 2007, of which almost 10,000 will be the direct result of excessive Christmas Spending.

If you have been refused credit in the past, then you will have realised just how important your credit score is and how inconvenient it can be if you allow yourself to get a bad credit rating. However, there are a number of steps that you can take to make sure that you are keeping your credit score as healthy as possible.

The first thing to do is make sure that there are no mistakes on your credit report. The cheapest and easiest way to do this after you have already been refused credit is to ask for the reason of the refusal. Lenders are obliged to inform you why you are being refused and if they have used a credit report to help them make their decision then you can ask to see the report.

Look over the report and if you find any errors on it at all, then inform the credit reference agency as soon as possible. If there is an error the credit referencing agency will have to have it corrected once notified.

Another thing that you can do is take out some credit such as store cards, and then use the cards and pay them off in full every month. Nothing improves a bad credit rating like prompt payment of your debts. If lenders see that you are borrowing money from other sources and paying it off on time, they will be very willing to lend money to you.

Another thing that you should bare in mind is that if you continue to apply for credit and are consistently refused, this will show up on your credit score and actually make it worse. Therefore, do not keep applying if you are sure that you will be rejected.

Surveys conducted by financial analysts are revealing some startling facts about how consumers view debt. It is common knowledge among the financial community that consumers have lost their fear of insolvencies, and that carrying a homeowner loan to the grave is a new trend.

However, new research indicates that many consumers have difficulty identifying when they have too many loans, borrowed too much on their mortgage, or are in financial trouble.

The research indicates that some UK consumers feel that living from ‘paycheck to paycheck’ is an acceptable lifestyle.

The problem is likely to grow worse if consumers don’t add Christmas to their debt management plan as soon as possible.  The media is full of heartfelt stories where consumers sent personal letters as Christmas gifts.

However, there are also plenty of stories where consumers borrowed loans, even applying for secured loans on their homes, to take a vacation.  Many of these people are already on the brink of financial crisis.

When UK consumers were asked how much a year they spend repaying interest on their loans, most cannot give an answer.  Many of them are not sure exactly how much they owe in loans.

Nineteen credit card companies have increased rates as much as 6 per cent in the second half of this 2006. Compare this with savings interest rates, which have increased by 0.5 per cent.

Overdraft rates have increased considerably. In September, NatWest increased their overdraft rates by more than 1 per cent, totalling 18.86 per cent. Recently it announced another rise in January. Overdrafts under £1,000 will now cost 20 per cent.

Consumers need to calculate how much they have in debt, the cost per month, and how much they pay on interest before they can create a debt management program that will repay their loans and reduce their debt.

While most people are willing to go to extraordinary lengths to get the best deals on most things in life, it is amazing how many people will put up with a poorly performing bank account. How happy are you with your bank account? Most people think that if they are getting their current account without having to pay any fees then they are doing well. Some will even get a small amount of interest free credit. However, the true cost of your bank account is not so much how much they charge you for having it, but rather, how much you are loosing each year by not earning any interest on your current account balance.

If you are a typical UK banking customer then you will usually have a positive balance on your current account. This will range from a couple of hundred or even over a thousand after you get paid, to probably quite a bit less by the end of the month. If you were to have this money in a savings account for the entire year, you could earn well over a hundred pounds in interest. However, because most bank accounts pay as low as 0.1% interest, you will be getting nothing near this amount. This means that you have actually paid hundreds in lost interest for your current account.

However, there are some bank accounts that pay as much as four, five or even six per cent on your current account balance. One example of such an account is Alliance and Leicester’s Premier Account. Provided you earn at least £6,500 a year, this account will be available to you. You will then earn over 6% for the first year and currently 4% after that. This is a huge benefit and you should look into benefits like this when you are choosing your current account.

For a number of years now, the main UK high street banks have been offering free overdrafts of up to about two thousand pounds to students. If you have recently graduated from University or even if you are still a student at the moment, you will be more than familiar with the practice and you may even have a student overdraft as you read, or be in the process of paying one off.

While these overdrafts are extremely popular with students, they have also been the subject of a lot of criticism and debate both from parents and also from debt groups. While students continue to snap up these overdrafts at rates of close to one hundred per cent, many others say that there is no need for students, who are already among the most indebted members of society to take on another form of debt. The fact that it is interest free and very convenient both to borrow and repay does not make up for the fact that it is another debt that will fall to be repaid eventually. Another criticism of the overdrafts is that they are simply being used as bait to hook students onto a life of perpetual debt. And while the overdrafts are interest free while the student remains at university, most of them will start charging interest as soon as you graduate.

On the other hand, banks defend the practice as a popular and effective way of providing cheap, in this case free credit to some people who need it now more than they will in the future, but who are likely to be able to pay it back in the future.

Barry Stamp, a member of the Institute of Credit Management’s Technical Advisory Committee, and Joint Managing Director of checkmyfile.com, the UK’s leading online  credit report to consumers supplier, will ask the UK’s debt advisors whether the British consumer is really over-indebted.

Stamp said: “We hear much said about UK consumers suffering from an alleged “debt crisis”, and often read anecdotal evidence of credit horror stories, but a widespread “debt crisis” is simply not supported by fact.

“The latest Family Spending Survey, carried out by the National Statistics Office, shows the average UK household spends £1.70 on credit card interest each week, but it also spends £4.40 on cigarettes, £6.60 on alcohol, and £2.70 on playing Bingo and the Lottery.

Stamp will present a report to the national conference of debt advisors that explains how the average household spends more on cigarettes, alcohol, or Bingo and the Lottery tickets, than they spend on credit card interest.  He will refute that the current controversy against credit card interest is trying to raise a panic over a problem that does not exist.

Stamp will also repeat: “The government’s own statistics, in a recent DTI consultation document, believes that 4% of the UK population is over-indebted. That leaves 96% of consumers who are able to meet their financial commitments.

This information puts a new slant on facts that the watchdog groups have used to create an almost panic situation.  This report will reveal the fact that while people fleeing debt is hitting record numbers, they are still represent a minor part of the population who are carrying secured, unsecured, or homeowner loans.