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If I take out a debt consolidation loan who will I owe money to?
Debt consolidation loans can be taken out to 'consolidate' your existing debts - credit cards, store cards, overdrafts, other loans - into just one debt owed to just one lender.
When you take out a debt consolidation loan you can use the money to pay back the money you owe to other lenders. You'll then owe the money to the loan lender who provided your debt consolidation loan.
What is a debt consolidation loan?
A debt consolidation loan is an effective way to reduce the number of creditors that you are paying out money to, thus reducing interest and lowering the amount that you have to pay out each month.
When you use a debt consolidation loan to wrap up your other credit you will no longer owe any money to your previous creditors, as these debts will be settled with your consolidation loan. Your financial obligations will now switch to the lender through which you have taken the debt consolidation loan.
How can a debt consolidation loan help?
Many people have benefited from taking out a consolidation to pay off their smaller financial commitments such as personal loans, credit and store cards, catalogues, etc.
There are a number of advantages to doing this, and if you currently pay a fairly large number of creditors you will really notice the difference in terms of hassle as well as in terms of how much you are paying out each month.
Trying to juggle a number of debts can prove difficult to manage and can be time consuming, but with a debt consolidation loan you can repay all of these debts (subject to the amount that the lender will allow you to borrow by way of a consolidation loan) and make one more convenient and manageable repayment instead.
What happens when I take out a debt consolidation loan?
Once you have taken out a debt consolidation loan you will no longer owe money to your other creditors (providing the money that you owe them has been settled through the consolidation loan).
You will now owe the money to the company through which you have taken the consolidation loan, and the amount that you will need to repay each month and in total will have been determined before you commit to the loan.
Your accounts with the other creditors will be paid in full through the consolidation loan, leaving you with just one debt to the new lender.
How do I get a debt consolidation loan?
Debt consolidation loans are available on a secured or an unsecured basis, depending on your circumstances. The amount that you repay will depend upon how much you borrow, the period over which you take the loan, and the interest rate on the loan.
It is a good idea to compare debt consolidation loans, as the cost per month and interest rate can vary from one lender to another. The amount that you will be able to borrow will also depend on a number of factors, such as your income and outgoings.
Once your debt consolidation loan has been approved and processed, the new lender will arrange for the balances with your existing creditors to be paid off, so you will need to provide details of your existing loans, account numbers, and balances.
Once this has been done, you will no longer have to make repayments to your existing creditors as your accounts with them will be settled. Your repayments will now be to the new lender for the amount specified when you took out the loan.
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