What Is Debt Consolidation?
Debt consolidation loans are fairly easy to understand. Think of an individual with 15 bill payments going to 15 different creditors each month. Imagine that individual struggling each month to pay each bill on time. Now imagine that individual rolling all 15 bills into one debt and paying just one bill per month, instead of many. This is how debt consolidation works. Debt consolidation loans allow borrowers to pay off several bills at once and end up with just one creditor to repay.
A debt consolidation loan is great for making a fresh start. You borrow one lump sum, repay your original creditors, and are left with a loan from just one creditor. Often, your monthly payment will be even lower than the total amount of bills you were paying monthly before consolidating. A secured debt consolidation loan generally offers lower payments than an unsecured personal loan and allows for a significantly longer repayment term.
Though the benefits of obtaining a debt consolidation loan are many, there are some disadvantages. For example, you may end up paying more over a longer period of time with a debt consolidation loan. There may be extra costs to pay for setting up your loan and if your loan is secured, you accept the risk of having your collateral repossessed if you default on the loan. Furthermore, since you will only have one creditor, you may have more trouble negotiating if you develop problems with repaying your loan at some point.
For many, however, debt consolidation loans are exactly what is needed to make paying off debts easy and manageable. Obtaining a debt consolidation loan can help you avoid bankruptcy, reduce interest rates, and gain a lower monthly payment. Debt consolidation loans can generally be obtained in amounts ranging from £5,000 to £75,000.
What to Know About Debt Consolidation Loans in the UK
Debt consolidation loans, in the UK, are often marketed towards those with credit problems. These loans enable borrowers to consolidate many debts into a single loan, making it easier to make monthly payments. Debt consolidation loans can help individuals struggling to meet multiple monthly bills and can assist them with avoiding bankruptcy.
Though an individual with problem credit could obtain a conventional secured loan, debt consolidation loans offers some benefits that make them a better alternative. For starters, debt consolidation loans are often easier for individuals with damaged credit to obtain than other types of loans. Lenders are often willing to offer debt consolidation loans at lower rates and some debtors are even willing to lower repayment rates for those who obtain debt consolidation loans.
Individuals can apply for debt consolidation loans through traditional banks, alternative lending companies, and online lenders. There are even some lending companies that specialize in debt consolidation loans. To obtain a debt consolidation loan, you must demonstrate that you have a reasonable amount of income, a stable residence, and are able to provide acceptable collateral.
The actual consolidation of your debts can occur in a variety of ways, depending on the lender. In some cases, the lender will handle the repayment of your debts for you, while in other cases the lender will provide you with the line of credit or a check and you will have the responsibility of repaying your debts.
By Luke Ashworth
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About the Author
Luke Ashworth is the founder of Accepted.co.uk which helps homeowners search for loans via the website http://www.accepted.co.uk.