Consolidation

Consolidation, or debt consolidation, is where you consolidate all your outstanding debts into the one loan in order to simplify repayments and to save on interest. Debt consolidation is most effective when loans and other credit with high interest rate charges are consolidated into a lower interest rate loan such as a mortgage.

Here’s how it works. You pay interest on your credit card and store card debts of anywhere between 14 to 18 percent per annum. Likewise, any personal loans you have may be costing you 10 percent per annum or more. However, the interest rate charged on your mortgage repayments will be at a much lower rate. So, if you borrow extra money from your mortgage and then repay your other outstanding debts, you will then be repaying all your outstanding debts at the much lower mortgage interest rate; saving you money. Consolidation also makes the job of repaying your debts much simpler because you are only making the one monthly repayment.

Even if you do not have a mortgage you can still save money by consolidating your debts by taking out a personal loan at a competitive interest rate in order to repay your credit card and other higher interest rate debts.

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