Debt Consolidation
Debt Consolidation / Credit card debt consolidation
If you make monthly repayments to multiple creditors, one option is to apply
for a debt consolidation loan. The principle behind this is that you borrow a
large, lump sum to repay your creditors and are then left with one creditor and
one monthly repayment. The idea is that the repayments on this single, larger
loan will be lower than the sum you are currently paying. For instance, if you
have four different credit cards you might be paying an average interest rate of
16.9%. It is possible to get a credit card debt consolidation loan for the
combined total. The interest rate on that might be about 9.9%. Thus, making a
saving on your monhtly repayment.
A debt consolidation loan can help many to reduce their payments for credit
cards, loans, hire purchase, etc. It works very well if you can easily afford
the repayments and are just looking for a way to simplify things and bring down
the interest rates.
However, there are many people that struggle to meet the repayments each
month. Some of these even find that their outgoings each month exceed their
income. For these people, a debt consolidation loan is probably not the answer.
If a person is in debt, taking out another loan to pay their other loans is not
the answer. A small reduction in their monthly repayments will not make a
significant difference in allowing them to break out of debt. In cases like this
a debt management plan may be more suitable. This will also consolidate all your
repayments into a simple monthly payment but it does not involve taking out
another loan.
