Debt Consolidation

Debt consolidation involves the taking out of one loan in order to repay two or more other loans, thereby consolidating or combining a number of debts into a single one. This can not only make all of the outstanding obligations of a person or business much easier to understand and keep track of as they now only need to concentrate on one loan rather than the details such as repayment dates of a number of loans, but it can also mean lower monthly repayments if the consolidated debt can be taken out over a longer period of time than the existing debts.

It is however necessary to carefully consider the terms and conditions before entering into a debt consolidation agreement, as there are likely to be fees involved which could make it expensive and not worth doing. Whilst monthly repayments may be lower if the debt consolidation can extend the repayment period, it is also likely to mean that you will be required to pay back more in interest over the life of the new longer loan, unless the consolidated debt has lower rates of interest than the existing debts. Debt consolidation may also involve the lender requiring the loan to be secured against an asset such as your house which means you risk losing it if you do not keep up with repayments, whilst the existing outstanding debts may be unsecured.