What is debt consolidation?
Debt consolidation describes a process whereby an individual pays off multiple debts, usually by taking out a secured loan over a fixed period. Debt consolidation is different from refinancing, which involves a single loan.
Often a debt consolidation loan will be secured against an asset; most likely your home. You should think carefully and be aware of the implications of taking out a debt consolidation loan. If fail to keep up repayments on it, you could lose your home.
A debt consolidation loan can be used to pay off existing debts in part or in full. The money borrowed in a loan will usually be used to pay off unsecured debts, such as:
- multiple credit cards and store cards
- overdrafts and bank loans
- hire purchase agreements
- mail order catalogue debts etc.
The aim of reconsolidation is to pay a reduced monthly sum to a single creditor for a longer period, freeing up some spare money in the process. It is important to understand that debt consolidation is a trade off.
When considering the total cost of the loan, you have to balance any personal benefits to paying a reduced monthly payment, even if the payments are stretched over a longer length of time.
When a consolidation loan is taken out, the issuer will either make direct payments to your existing creditors, or will advance the loan to you directly, and you will be responsible for paying off our debts yourself.
In this debt consolidation resource, we give an overview of the pros and cons of debt consolidation, as well as outlining some of the people it can help.
We would hope you will find the information useful, but bear in mind that each person’s circumstances are different. That means that you should always seek advice from a trained professional advisor before applying for a debt consolidation loan.
If you would like more information, ring Debtsolver now on Telephone 08000 434 336 (Free for UK residents only).
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