Introduction on How to Consolidate Debt

First of all you may be thinking ‘what is debt consolidation?’

So we shall explain.

Consolidating debt means putting various lines of credit of borrowings under ‘one roof’. So an example would be, if Bob had three credit card balances of three thousand pounds each he would take out a nine thousand pounds loan and pay off the three separate balances with the one loan. Consolidating debt means bringing together.

Why might someone consolidate debt?

There will be two primary reasons which are most common for debt consolidation cases. The first is to save money. For example often credit cards have a higher annual percentage rate than other forms of financing such as secured loans. Because of this, if a borrower has two credit cards at thirteen percent interest for example, with a balance of five thousand pounds each he/ she will be paying one thousand three hundred pounds per year in interest. If he / she could obtain a secured loan at five percent for example and pay off the two credit card the borrower would only be paying five hundred pounds per year, thus saving the substantial amount of eight hundred pounds over one year.

The second reason why someone might wish to consolidate their debt is to rearrange their finances and payment planning. For example if they have minimum payments of three hundred pounds to make on their credit cards, taking out a loan for a long term they may be able to reduce their monthly payments, thus making the debt more manageable. Extending the term in this manner ill often mean higher total interest paid however it means the borrowers will avoid missing payments and obtaining any adverse credit marks on their record if payments can be made manageable so they can pay it off, piece by piece.

Steps to take if you are considering consolidating your debt

The first step will be deciding which debts you want t clear and consolidate. Secondly you should make sure they can be paid off and that you won’t incur any early redemption penalties. Thirdly you should shop around to find the most suitable product for you, preferably at a low rate. Often websites have calculators (if not you’ll have to make your own calculations) so you can find out which term is the most manageable, financially, for your situation.