Debt consolidation - a quick guide

Author: James Mathews

Author: James Mathews

A debt consolidation loan could be the most appropriate way for you to clear your debts, whether the main thing you're looking for is a way to make your payments more manageable, or a way to make sure you have some money set aside each month for unexpected costs.

Debt consolidation - how does it work?

A debt consolidation loan is a loan designed to repay all your existing unsecured debts in one go - leaving you with just one payment to make each month.

This basically means that instead of making several payments to several creditors, you will now make just one payment to one creditor per month until all your debt (plus the interest it has accrued) has been repaid.

This isn't the only benefit a debt consolidation loan has to offer. For example, you may be able to lower the amount you are required to pay each month by arranging to spread your repayments out over a longer timeframe. In doing this, though, you may end up paying more interest overall, since your debt would be accruing interest for longer.

However, if you choose to consolidate debts with a high APR (Annual Percentage Rate) - from credit/store cards, for example - you may actually be able to save money in interest. How? Although you may arrange to repay the debt consolidation loan over a longer timeframe (and will therefore pay interest for longer), the actual interest rate on the loan could be significantly lower than the rates on your original unsecured debts. So your debt might be growing for longer - but it would be growing more slowly.

Who could debt consolidation loans be suitable for?

Debt consolidation loans are designed for people with several debts who would like to simplify their finances and/or reduce their monthly outgoings.

Debt consolidation loans would probably not be suitable for people who have an unreliable income, can't consolidate all their debts, or don't think they'll be able to repay their loan in a reasonable amount of time.About the Author:

For more information on debt consolidation visit www.firstdebtconsolidation.co.uk

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