Debt consolidation is the process of combining all your debts into one loan.This option means you will only have to make one repayment at a time and will only have to deal with one interest rate.
Here, we look at how this process works, the different options you have for consolidating your debts and the pros and cons of debt consolidation to help you decide if it will work for you.
When you apply for a debt consolidation loan or product, such as a credit card or personal loan, you include details of the existing debts that you would like to transfer to the new account.
When the loan is approved, your lender will roll these debts into one on the new account by paying out the other lenders you’ve been dealing with.
You’ll then make regular repayments of the balance, with just one interest rate applied to the debt.
If your previous debts were due at different times and had different repayment amounts and interest charges, then this process can make your monthly bills easier to handle and eliminate your debt faster.
Debt consolidation can be a more affordable way to manage multiple card and loan balances, but it’s not right for everyone.In general, consolidating debts could work for you in any of the following scenarios: If some or all of these factors apply to you, then you may want to start reviewing different debt consolidation and repayment options.There are many ways to consolidate your debt, including balance transfer credit cards, personal loans and home equity.Below, we’ve outlined the key debt consolidation and repayment options available when you want to use this method to pay off your debts.Balance transfer credit cards allow you to transfer existing debts to a new card and usually provide a low or 0% introductory interest rate.The introductory period could last anywhere from 3 to 24 months depending on the card and can allow you to save even more money on interest charges while you pay off the debt.