What is Debt Consolidation? Debt Consolidation Explained

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"Mike owed £15,040... He's now paying £255 a month instead of £500."
Mike

"Neil owed £30,526... He's now paying £255 a month instead of £908."
Neil

"Jessica owed £38,510.86... She's now paying £492 a month instead of £1272."
Jessica

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.

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 you 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 consolidation 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, with making the payments over a longer period 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. It is important that you do this and destroy any other credit cards that you have repaid or there may be temptation to reuse them.

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 debt 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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