Debt Consolidation
What is debt consolidation?
Debt consolidation is a way of simplifying your repayments of outstanding debts.
A debt consolidation loan can be used to transfer this existing debt, such as credit
cards and store cards, into one loan. The aim is for the monthly repayments on this
single loan to be more manageable than the repayments on the outstanding debt. This
may be through a lower interest rate, a fixed interest rate or simply through the
convenience of making payments for only one loan.
It is important to remember that a debt consolidation loan doesn't reduce the amount
of debt itself. It may however reduce the interest or spread your repayments over
a longer period of time, making them easier to repay - although please consider
that extending payments over a longer period may increase the overall cost. Debt
consolidation often involves securing a loan against an asset that serves as collateral.
This asset is often a property and if so, the person taking out the consolidation
loan must be a homeowner.
In theory, debt consolidation should be advisable to someone with a significant
credit card debt. Credit cards can carry a larger interest rate than a secured loan,
and hence consolidating credit card debts with high interest into one loan with
a lower rate of interest should be beneficial.
What else is debt consolidation known as?
Debt consolidation can also be referred to as 'student loan consolidation', 'credit
card consolidation' and 'loan consolidation' depending on the individual circumstances.
Essentially this still refers to the same process, but the name refers to the type
of debt being consolidated.
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