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How Does Debt Consolidation Work ?

Debt consolidation provides a way for you to manage any debts that you may have. If you have a number of debts than it can be rather time consuming to manage all of these and you may find that you miss payments. This is where debt consolidation can work as it allows you to merge these into one so that you only have to make one payment a month instead of several. It could also help to make your payments more manageable since you could find a better rate of interest with a different lender. In many cases these new loans will be secured to property via a remortgage.

Debt consolidation can be useful to help clear debts on either credit or store cards or for overdrafts.

Advantages
You could find a loan that has a much lower interest rate which could help save you money and make your payments more manageable. Tackling your debts can help to relieve stress and make you feel more in control of your problems. It can also be helpful to have just one creditor instead of several and means you are less likely to miss a payment due to an oversight.

Disadvantages
You may be charged to settle early on the loans that you already have. Depending on the type of loan you take out you may have to pay commission and fees, for example, if you consolidate your debts by taking out a remortgage.

Alternatives to a debt consolidation loan
Debt consolidation is not suitable for everyone so you may like to explore the other options available to you. You could look at entering into an Individual Voluntary Arrangement (IVA) which is essentially a legal agreement between you and your creditors to repay the debts that you have.

A Debt Management Plan will help you to come to an agreement with your creditors to repay what you can afford and you will make a monthly repayment to the Debt Management Company who will be in charge of the plan. Bankruptcy is another option but is generally considered as a last resort. With this your debts will be written off after a short period, however your assets will be sold to pay the debts and you may face losing your home.