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Debt Article | Debt Consolidation


Debt Consolidation Review

So many of us have debts that we find difficult to manage, and the range of options available to help you handle these debts can be pretty baffling. Debt consolidation involves combining the amount that you owe from several debts into one, towards which you pay a single amount instead.

There are a host of different types of debt consolidation, although it’s worth bearing in mind that all a consolidation plan can do is have you pay the debt back in a different way, it doesn’t make it go away.

Loans

The most common approach to debt consolidation is when you obtain a loan of one kind or another, and use the funds to pay off your existing debts, instead leaving you only with the debt for the loan.

The usefulness of this approach varies greatly in different circumstances. As is the case with any loan, it is imperative that you ensure you’ve understood the terms. If you work out what difference the loan will make to your monthly bills, to the total amount that you’ll end up paying back, and to the length of time it’ll take to pay it back, and compare this to your debts as they stand, you’ll get a better idea whether it’s worth it.

Loans | IVAs

Different types of loan can be used to consolidate debts. Loans that are specifically billed as consolidation lending are only one of those available, and in actual fact these don’t always offer the best rates of interest.

Other borrowing such as personal loans from your bank or secured lending against any property that you have can also provide you with the funds to pay your debts off.

If you’re thinking about using a loan for this, make sure it’s going to be worthwhile, remembering that if you’ve secured the loan with property as collateral, that you’re putting this at risk.

Balance Transfers

If you have multiple debts, another option for consolidating them is via a Balance Transfer. The most common example of this is transferring multiple credit card balances onto one. Typically in this case you would transfer to whichever card offers the best interest rate.

As always, you should work out the future impact on your finances, and remember that interest rates are often only for fixed periods, possibly increasing at a later date.

Debt Consolidation Services

A host of companies and non-profit organisations operating across the UK offer various debt consolidation services. These range from straightforward advice and information, in which someone can explain to you one-on-one what your options are and how they work, to structured plans and loans.

Debt Consolidation Companies will generally get an overview of your finances before making any suggestions, and may help you to create a payment plan to manage your debts.

In some cases they may also deal with your creditors direct, handling the payments to them, with you simply paying what you can to them each month and their experts figuring out how to best target your funds. You should research as far as possible the credentials and costs associated with these services before agreeing to them.