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Debt Consolidation - What It Is And How It Works
By Debtsolver, Thu Dec 8th
What is Debt Consolidation? Debt consolidation in the UK is the process where a debtortakes out a single loan to pay off other existing loans. Thiscan be done to secure a lower interest rate, and hence makelower monthly repayments, or to just to simplify your repaymentplans. Unlike debt management, where your previous debts are notcleared, a debt consolidation loan clears old previous debts,once and for all. Debt consolidation takes a number of forms; either as theconversion of multiple unsecured loans into a new, unsecuredloan, or debts can be consolidated into a secured loan againstan asset, most often a property, which be used as collateral.Because a secured loan offers less risk to the creditor, theinterest rate can be lower, and hence a consolidated loan can becheaper. The risk to you the debtor is that you could lose yourhome if you fail to keep up repayments.
For most people in the UK, debt consolidation offers advantagesto people with high levels of credit card debt because at thepresent time credit card interest rates in the UK are generallyhigher than those offered by the banks. Other groups that wouldbenefit from debt consolidation are individuals with high levelsof debt against high street store cards, of which there havebeen some 14 million issued in the UK, with an average APR ofabout
30%. In a recent report by the UK Competition Commission("Store Card Credit Services", September 2005), it was claimedthat many shoppers were paying inflated interest rates on theirchargecards and being overcharged by £ 100 million each year. Clearly, for many people there can be benefits to simplifyingyour credit commitments and consolidating them into one existingloan, thus potentially:
Reducing financial commitments Reducing the risk of paying fees due to late payments to one ormore of your creditors Alleviating the stress in having to deal with multiplecreditors each month
How Debt Consolidation Works: Debt consolidation allows you to make a clean start, convertingyour existing commitments into a single loan payment. Debtsolverwill review your financial circumstances to make sure that aconsolidation loan is the best option for you. You should notethat a consolidation loan would usually be secured against yourhome, which would be at risk. Hence, debt consolidation may notbe available if your financial difficulties are so severe thatyour credit rating is adversely affected, and if your debtcommitments are very high. Under such circumstances an IVA orbankruptcy procedure through the UK courts may be the mostsuitable choice for you. If a debt consolidation plan is the best option for you, yourold loans will be paid off and replaced with a new one on morefavourable terms, and your previous credit rating should be keptintact. You will then have a new loan with a single monthlypayment. If you still have any questions about a debt consolidation plan,you can have a look at our debt FAQ page, or you can call us.For a non-obligatory review of your finances you can fill outour debt problems application form or call us directly at thenumber listed. All information collected during the procedure isentirely confidential. It's important to us that you aren't keptwaiting, and you will hear from us within 24 hours. Should youdecide to use our services, in most cases the necessary work canbe done over the telephone. However, if this is not possible oryou would prefer to meet in person, we can arrange for one ofour Senior Advisors to meet with you. Debtsolver operate aNational service and have offices throughout the UK. About the author:Debtsolver is a UK company providing resources and informationon DebtManagement UK, Debt Consolidation UK, DebtProblems UK and IVA & DebtAdvice
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