Short-term debt is expensive and the cheapest money you can borrow is at home loan rates. Some financial institutions allow customers to roll the short-term debt into the long-term debt at the home loan rate.

This can reduce the total monthly repayments by hundreds of pounds and although it can work out more costly in the long run, it's very tempting to some households. First Active launched its own version of this type of refinancing package last week and it goes by the name Utopia.

Other institutions offer similar packages but First Active is the first mainstream bank to "brand the concept and promote it aggressively".

New and existing customers can avail of Utopia. First Active suggests that typical borrowings covered by the deal include car loans, credit card debt, holiday loans, home improvement loans, credit union loans and overdrafts.

So what's to stop everybody from consolidating their loans in the morning and laughing all the way home from the bank?

Well it's a pretty basic rule of financial planning not to pay off short-term debt with long-term debt because the interest paid can add up to more over the longer term.

Refinancing deals are nothing new, and for some people they can have the same effect as fad dieting - they just pile the debt back on again. The Consumers' Association finance spokesman Mr Eddie Hobbs advises that borrowers should not sign up to this kind of arrangement unless there is no alternative and they are committed to steer clear of any further debt.

"You should vigorously explore cheaper short-term loan options before availing of something like this, it is not something that should be taken up for convenience sake."

Before considering the refinancing route, the borrower needs to do some simple sums. Work out what the full repayment is on all the loans in question by multiplying the monthly repayment figure by the number of months left to run on the debt.

These figures added together will give you the full and final repayment you can expect to make, bearing in mind that interest rates will fluctuate in the future.

Then compare that to the new monthly repayment figure multiplied by the number of months in the repayment term, disregarding any discount or promotional rate that might be offered for the first year. It will be more reflective of the true overall cost to use the standard variable rate.

In some cases, the refinancing works out cheaper over the term or it can work out approximately the same when all the loans are rolled in.

But you have to be realistic and predict what you are likely to do with the monthly saving. When this year's car loan, personal loan and credit card loan has been bundled up and spread over 20 years, what will happen the next few times you want to pay for a holiday or school fees or a car?

Will you be covering those expenses from savings built up from your increased cash flow or will you just end up borrowing again?

In defence of Utopia, First Active says it can ease the financial strain on a family who are already extended by allowing them to consolidate existing borrowings at lower monthly repayments.

The bank also suggests that the additional cash flow could be invested in a savings product. Indeed it could be a good opportunity for those with enough discipline to redirect the freed up cash into a long-term investment, but because of the danger of building up more debt these products should be handled with care.