Sorry Carol, these loans just don't add up

Channel 4 maths guru Carol Vorderman was this week accused by leading debt charities and Britain's biggest money website of fuelling the country's £1 trillion debt mountain by fronting controversial "loan consolidation" television adverts. But what is it that is so wrong about taking a consolidation loan?

Secured loans are sold as a "cure all" where people reduce all their debts to "one easy payment". Usually this is presented as costing borrowers substantially less than their previous monthly payments. So shouldn't wise borrowers opt for a consolidation loan?

No, says Martin Lewis of moneysavingexpert.com, who is behind the appeal launched this week asking Ms Vorderman to stop advertising FirstPlus's secured loans. In its first day alone his petition picked up 25,000 signatures.

He says: "It's the lender that gets the 'security', not you. Used in adverts, the term 'secured' can sound comforting, yet the comfort isn't for the borrower. Many people don't realise that unsecured is better than secured; and that when you turn credit card debts into secured debts, you have suddenly decided to risk your home on this borrowing."

So what else is wrong with a secured loan?

The rates can be more expensive than unsecured loans

Most good competitive unsecured loans, for those with decent credit scores, are at a much cheaper rate than secured loans.

The rates are not always "typical"

While often a "typical" rate is advertised by secured lenders, many people - especially those with worse credit histories - pay higher rates, sometimes more expensive than the debts they are converting. It can result in the ludicrous scenario whereby people are paying more to have bigger debts.

The rates are variable, not fixed

Most people understand normal bank loans, where the rate of the loan is fixed at the outset. That way, you know exactly what you'll be paying over the life of the loan. With secured loans, the rates are usually variable - so it is almost impossible to have any certainty as to what you'll be paying overall.

On Monday BBC 1's Real Story programme will feature a couple, already £20,000 in debt and only earning £18,000 a year, who were offered a £47,000 FirstPlus secured loan. The initial interest rate was 10.9% but later rose to 12%.

Borrowing is extended over a longer period

Secured loans encourage borrowing over much longer periods, sometimes 25 years. This is considerably longer than the normal unsecured loan that is being replaced. This is how they the lenders can advertise "one low easy payment". It's lower because you're spreading the cost, not because interest rates are lower.

For example: a £10,000 personal loan at a relatively high rate of 15% costs approximately £4,000 in interest over five years. Yet a £10,000 secured loan at 12.9% (a perfectly normal rate) will, over 25 years, set you back £22,000 in interest payments.

Payment protection insurance

Secured lenders make large profits from selling insurance on top of their loans. The cost of this insurance is not included in the interest yet it adds enormously to the cost - typically adding £7,000 on a £10,000 loan over 25 years. Worse still, when people try to claim, many are turned down.

Larger borrowing

Secured loan companies allow those people consolidating their debts to borrow much higher sums, meaning the debts are much bigger. Sadly, when many people consolidate their credit cards into a secured loan, they then take out new credit cards, and the debt spiral just worsens.

Early repayment penalties

In the past, secured debt companies locked people in over longer terms with harsh repayment penalties if they tried to pay the loan off earlier. Recent changes in legislation mean now the maximum penalty is two months' worth of interest.

However people on the old loans are still subject to such penalties. Also the rules do not apply to borrowing over £25,000, so some lenders charge bigger penalties for loans over this amount.

If your collection of credit cards, store cards and personal loans is running out of control, don't despair. There are steps you can take

For those with a good credit score, and who own a property, the first step should always be to add it on to the mortgage. Remortgaging or extending the mortgage, is effectively securing the debts on your home, but at not much more than half the rate of a secured loan.

If you're not a homeowner with equity, the outlook is tougher. But there are still options.

Firstly, it's boring, but do a budget so at least you can measure your spending.

For the credit cards, using the right credit card rather than the wrong one is the cheapest way to act. If your credit score is not too badly impaired, you can shift your debts on to a long-term cheap rate of 4.9% on some cards. But try to repay as much as you possibly can.

Or you might be able to bounce your credit card debt on to a normal unsecured personal loan, the cheapest are around 5.5%, though those with worse credit scores will pay more.

· A number of non-profit debt help agencies are great if you're at crisis stage. Contact the Consumer Credit Counselling Service 0800 138 1111, National Debtline on 0808 808 4000 or visit your local citizens advice centre. They should always be the first port of call ahead of any commercial lending service. The petition can be found at moneysavingexpert.com/carol